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entitled 'International Financial Crime: Treasury's Roles and
Responsibilities Relating to Selected Provisions of the USA PATRIOT
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Report to the Chairman, Committee on the Judiciary, House of
Representatives:
United States Government Accountability Office:
GAO:
May 2006:
International Financial Crime:
Treasury's Roles and Responsibilities Relating to Selected Provisions
of the USA PATRIOT Act:
Combating Money Laundering and Terrorist Financing:
GAO-06-483:
GAO Highlights:
Highlights of GAO-06-483, a report to the Chairman, Committee on the
Judiciary, House of Representatives.
Why GAO Did This Study:
Money laundering and terrorist financing can severely affect the
nation’s economy and also result in loss of lives. To combat these
transnational crimes, the Treasury Department (Treasury) and its
component bureau, the Financial Crimes Enforcement Network (FinCEN),
have key roles. Section 330 of the USA PATRIOT Act encourages the
federal government to engage foreign jurisdictions in negotiations to
ensure that foreign banks and financial institutions maintain adequate
records to combat international financial crime. Treasury plays a lead
role in facilitating such efforts. In accordance with its various
responsibilities codified by section 361, FinCEN is to coordinate with
its foreign counterparts—financial intelligence units (FIU). This
report describes (1) Treasury’s approach for negotiating with foreign
jurisdictions, (2) how FinCEN has contributed to establishing FIUs in
foreign countries and enhancing the capabilities of these units, and
(3) what actions FinCEN is taking to maximize its performance as a
global partner.
What GAO Found:
With Treasury’s leadership, the U.S. interagency community has been
acting to accomplish the goals articulated in section 330 of the USA
PATRIOT Act. In particular, according to Treasury, negotiations with
foreign jurisdictions are being accomplished through U.S. interactions
with the Financial Action Task Force on Money Laundering (FATF), an
intergovernmental entity that has developed international standards for
combating money laundering and terrorist financing. Treasury emphasized
that enactment of section 330 provided a welcomed congressional
endorsement of long-standing U.S. policy to combat international
financial crime by negotiating with foreign jurisdictions through
multilateral organizations, such as FATF.
Since its formation in 1995, FinCEN has helped foreign jurisdictions
establish new FIUs and improve the capabilities of existing units. The
number of FIUs has jumped from 14 in 1995 to 101 currently, partly
because of training and technical support provided by FinCEN and
Treasury’s Office of Technical Assistance and funding provided by the
Department of State. Given the growth in the number of FIUs, future
efforts likely will involve giving more attention to improving the
capabilities of existing units, especially in reference to combating
terrorist financing—an operational task now included in the formal
definition of an FIU.
To maximize performance as a global partner, FinCEN is taking various
actions, such as assigning an analyst to the Federal Bureau of
Investigation’s Terrorist Financing Operations Section. Also, FinCEN is
modernizing the Egmont Secure Web, which is used by FIUs worldwide to
exchange sensitive case information. To enhance its responsiveness to
FIUs that request case assistance, FinCEN is allocating additional
staff to its Office of Global Support and also is developing a new case
management system. However, in the most recent customer satisfaction
survey, FinCEN invited less than one-half of FIUs to participate and
received only two responses. Future surveys would need to be more
inclusive and incorporate better survey development and administration
practices, such as follow-up efforts to achieve higher response rates,
if the surveys are to serve as a useful management information tool for
monitoring and enhancing performance.
Figure: Meeting of FIU Representatives in Washington, D.C. (June 30 to
July 1, 2005):
What GAO Recommends:
GAO recommends that the Director of FinCEN take appropriate steps to
ensure that future customer satisfaction surveys include more
comprehensive coverage of and higher response rates from FIUs. Treasury
agreed.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-483].
To view the full product, including the scope and methodology, click on
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[End of Section]
Contents:
Letter:
Results in Brief:
Background:
Treasury Department Has a Key Role in Promoting International
Cooperation to Combat Money Laundering and Terrorist Financing:
Enhancing the Capabilities of Financial Intelligence Units Is a
Continuing Challenge:
FinCEN Is Taking Various Actions to Maximize Its Performance as a
Global Partner, but More Comprehensive Feedback from Financial
Intelligence Units Would Be Useful:
Conclusions:
Recommendation for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Objectives:
Scope and Methodology:
Data Reliability:
Appendix II: Financial Action Task Force and Related Regional Bodies:
The Financial Action Task Force and Related Regional Bodies Encompass
Member Jurisdictions around the Globe:
FATF Recommendations Provide a Set of Countermeasures against Money
Laundering and Terrorist Financing:
A Widely Adopted Methodology Is Used for Monitoring Compliance with
Financial Action Task Force Recommendations:
Appendix III: The Egmont Group of Financial Intelligence Units:
The Egmont Group of Financial Intelligence Units Has Grown
Significantly since 1995:
The Egmont Group Provides a Network for Exchanging Information:
Tables:
Table 1: Main Weaknesses Identified in Assessments of Compliance with
FATF Recommendations for Combating Money Laundering and Terrorist
Financing:
Table 2: Financial Intelligence Units Connected to Egmont Secure Web
and Number of User Accounts per Country (as of February 2006):
Table 3: Case-Management Statistics--Foreign FIU and FinCEN Requests
for Assistance:
Table 4: Number and Names of Foreign Customer Entities That Requested
Assistance from FinCEN in Fiscal Year 2005 (as of July 25, 2005):
Table 5: Establishment Dates and Membership of FATF and FATF-style
Regional Bodies:
Table 6: FATF Recommendations on Money Laundering and Terrorist
Financing:
Table 7: Essential Criteria Used in the Methodology for Monitoring
Implementation of FATF Recommendation 26:
Table 8: Egmont Group Membership by Year and Jurisdiction:
Figure:
Figure 1: Annual Growth in the Number of Financial Intelligence Units:
Abbreviations:
BSA: Bank Secrecy Act:
FATF: Financial Action Task Force on Money Laundering:
FBI: Federal Bureau of Investigation:
FinCEN: Financial Crimes Enforcement Network:
FIU: financial intelligence unit:
IDW: Investigative Data Warehouse:
IMF: International Monetary Fund:
SAR: suspicious activity report:
USA PATRIOT (Act): Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (Act):
United States Government Accountability Office:
Washington, DC 20548:
May 12, 2006:
The Honorable Jim Sensenbrenner, Jr.
Chairman:
Committee on the Judiciary:
House of Representatives:
Dear Mr. Chairman:
Money laundering and terrorist financing are transnational crimes that
can have devastating effects, involving severe economic consequences as
well as loss of lives. The combating of these crimes demands not only
effective U.S. interagency efforts but also concerted international
cooperation. Key roles are played by the Department of the Treasury
(Treasury) and one of its components, the Financial Crimes Enforcement
Network (FinCEN).[Footnote 1] Section 330 of the USA PATRIOT
Act[Footnote 2] expresses the sense of the Congress that the President
should direct the Secretary of State, the Attorney General, or the
Secretary of the Treasury to enter into negotiations with foreign
jurisdictions to ensure that foreign banks and other financial
institutions maintain records of transactions and account information
relating to terrorist organizations or their members and to ensure that
such records are made available to U.S. law enforcement and domestic
financial institutions when appropriate. State Department, Justice
Department, and Federal Reserve Board officials told us that the
Treasury Department plays a lead role in addressing the efforts
encouraged by section 330. According to Treasury Department officials,
the U.S. interagency community has been acting to accomplish the goals
articulated in section 330 through ongoing efforts to combat
international financial crime. Section 361 of the USA PATRIOT
Act[Footnote 3] established FinCEN as a statutory bureau in the
Treasury Department and listed its various duties and powers, which
include coordinating with its foreign counterparts--that is, financial
intelligence units (FIUs) in other countries. These units are
specialized governmental agencies created to combat money laundering,
terrorist financing, and other financial crimes. Each FIU is the
respective nation's central agency responsible for obtaining
information (e.g., suspicious transaction reports) from financial
institutions, processing or analyzing the information, and then
disseminating it to appropriate authorities.
This report addresses the following questions regarding efforts under
sections 330 and 361 of the USA PATRIOT Act to combat money laundering
and terrorist financing:
* Under section 330, how has the Department of the Treasury interacted
or negotiated with foreign jurisdictions to promote cooperative efforts
to combat money laundering and terrorist financing?
* Under section 361, how has FinCEN contributed to establishing FIUs in
foreign countries and enhancing the capabilities of these units to
combat money laundering and terrorist financing?
* What actions is FinCEN taking to maximize its performance as a global
partner in combating money laundering and terrorist financing?
* To address these questions, we interviewed responsible officials at
and analyzed relevant documentation obtained from the Departments of
Justice, State, and the Treasury and applicable components. Also, in
further reference to promoting international cooperation, we focused on
obtaining information about Treasury's role and activities regarding
multilateral organizations--particularly the Financial Action Task
Force on Money Laundering (FATF), an intergovernmental entity that has
developed international standards for combating money laundering and
terrorist financing, and the various FATF-style regional bodies that
implement the standards.[Footnote 4] We obtained information about
FinCEN's participation in the Egmont Group, the association of FIUs
worldwide, whose purpose is to facilitate transnational cooperation and
information sharing to combat money laundering and terrorist financing.
Regarding statistical information that we obtained from FinCEN--such as
the number of requests for assistance submitted by foreign FIUs to
FinCEN--we discussed the sources of the data with FinCEN officials and
worked with them to resolve any discrepancies. We determined that these
data were sufficiently reliable for the purposes of this review. We
conducted our work from May 2005 through March 2006 in accordance with
generally accepted government auditing standards. Appendix I presents
more details about our objectives, scope, and methodology.
Results in Brief:
According to Treasury Department officials, the U.S. interagency
community has been seeking to accomplish the goals articulated in
section 330 through ongoing efforts to combat international financial
crime by actively engaging and negotiating with foreign jurisdictions
through the medium of FATF, the related FATF-style regional bodies, the
International Monetary Fund, and the World Bank. Treasury officials
also commented that enactment of section 330 represents a welcomed
congressional endorsement of long-standing U.S. government policy to
work with these entities to develop a global system to ensure that all
countries adopt and are assessed against international standards for
protecting financial systems and jurisdictions from money laundering
and terrorist financing. Further, as an incentive or pressure mechanism
that can be used in conjunction with foreign negotiations, Treasury
considers section 311 of the USA PATRIOT Act to be particularly
relevant.[Footnote 5] For example, section 311 authorizes the Secretary
of the Treasury (following appropriate interagency consultation and
consideration of multiple factors) to designate a foreign jurisdiction
or an institution as being of "primary money laundering concern"--
which, in turn, could result in the Secretary of the Treasury taking
one or more special measures, such as prohibiting or imposing
conditions upon the opening of correspondent accounts with the
designated entity. Since the USA PATRIOT Act was signed into law in
October 2001, three foreign jurisdictions (Burma, Nauru, and Ukraine)
and certain financial institutions in Belarus, Latvia, the Macau
Special Administrative Region (China), Syria, and the "Turkish Republic
of Northern Cyprus"[Footnote 6] have been designated primary money
laundering concerns. Special measures have not been imposed in most of
these cases, but the prospect of imposing them has led to some
corrective actions.
As a member of the Egmont Group since 1995, FinCEN has focused its
global efforts particularly on assisting jurisdictions to establish new
FIUs and improving the capabilities of existing units. Over the past
decade, the number of FIUs recognized by the Egmont Group has increased
more than sevenfold, from 14 in 1995 to 101 as of July 2005, partly
because of federal interagency efforts, including training and
technical support provided by FinCEN and Treasury's Office of Technical
Assistance as well as funding provided by the Department of
State.[Footnote 7] According to FinCEN, given the dynamic growth in the
number of FIUs, future efforts will involve giving more attention to
improving the capabilities of existing units, especially in reference
to combating terrorist financing--an operational task now included in
the Egmont Group's definition of an FIU. During our review, State
Department officials noted one area where they would like to augment
U.S. assistance to nascent FIUs; that is, ensuring the nascent FIUs
have appropriate information technology (hardware and software) because
such technology is essential to appropriately functioning FIUs. The
State Department and FinCEN are engaged in ongoing discussions on how
to augment such assistance.
To maximize its performance as a global partner in combating money
laundering and terrorist financing, FinCEN is undertaking various
actions. Following passage of the USA PATRIOT Act, FinCEN's most
important operational priority has been to provide counterterrorism
support to the law enforcement and intelligence community. In this
regard, FinCEN in January 2006 assigned an analyst to the Federal
Bureau of Investigation's (FBI) Terrorist Financing Operations Section.
Also, FinCEN currently is modernizing the Egmont Secure Web--an
Internet-based system used primarily for its encrypted e-mail
capability to exchange sensitive case information. Most (96) of the
Egmont Group's 101 members are connected to the Egmont Secure Web,
which is operated and maintained by FinCEN, and the system is
considered to be of paramount importance to the operations of FIUs. By
operating and improving the Egmont Secure Web, FinCEN plays a key role
in fostering the exchange of information among FIUs. Further, to
enhance its own responsiveness to information requests submitted by
foreign FIUs, FinCEN is allocating additional staff resources to its
Office of Global Support, which is responsible for processing requests
from foreign FIUs, and FinCEN is developing a new case management
system, which is targeted for completion in fiscal year 2008. FinCEN
periodically surveys its customers to help assess its responsiveness to
domestic and international requests for assistance. However, FinCEN's
most recent customer satisfaction survey of external clients had
limited coverage of FIUs; less than half of all Egmont Group members
were invited to participate, and only two provided responses. This
report recommends that the Director of FinCEN take appropriate steps to
help ensure that future surveys of FIUs are sufficiently inclusive and
responsive to achieve the intended purpose of providing performance-
based information as a basis for evaluating services, including the
identification of areas warranting improvement. The Department of the
Treasury agreed with our recommendation.
Background:
In an international context, the Treasury Department is the United
States' counterpart to other nations' ministries of finance. The
department's responsibilities, among other things, include safeguarding
the U.S. financial system from abuse by money launderers, terrorists,
and other criminals. Over the years, in carrying out this
responsibility, the department has established relationships with
finance ministries, central banks, and other financial institutions in
nations around the world as well as with multilateral organizations
such as FATF, the FATF-style regional bodies, the International
Monetary Fund (IMF), and the World Bank.
FATF is an intergovernmental entity whose purpose is to establish
international standards and to develop and promote policies for
combating money laundering and terrorist financing. At its formation in
1989 by the United States and other industrialized nations, FATF's
original focus was to establish anti-money-laundering standards and
monitor the progress of nations in meeting the standards. In 1990, FATF
issued its "Forty Recommendations on Money Laundering" to promote the
adoption and implementation of anti-money-laundering measures. For
instance, the recommendations encouraged nations to enact legislation
criminalizing money laundering and requiring financial institutions to
report suspicious transactions. Following the events of September 11,
2001, FATF expanded its role to combat terrorist financing.
Specifically, in October 2001, FATF adopted "Eight Special
Recommendations on Terrorist Financing." Among other actions, these
recommendations committed members to criminalize the financing of
terrorism and to freeze and confiscate terrorist assets. In October
2004, FATF published a ninth special recommendation on terrorist
financing to target cross-border movements of currency and monetary
instruments ("cash couriers").
Collectively, FATF's "40 plus 9" recommendations are widely recognized
as the international standards for combating money laundering and
terrorist financing (see app. II). In monitoring nations' progress in
implementing the recommendations, FATF collaborates with other
multilateral organizations, particularly the FATF-style regional bodies
that represent nations in seven geographic areas. These regional groups
are to help nations in the region to implement the international
standards developed by FATF. Also, these standards have been recognized
and endorsed by the World Bank and IMF for use in conducting
evaluations and assessments of nations' progress in implementing
measures to counter money laundering and terrorist financing. To be
compliant with FATF recommendations, a nation must, among other
measures, establish an effective FIU.
The United States' FIU is FinCEN, which was administratively
established in 1990 as a Treasury Department component. FinCEN was 1 of
the 14 charter members of the Egmont Group, which was formed in 1995 to
enhance information sharing among FIUs (see app. III). In 2001, section
361 of the USA PATRIOT Act established FinCEN as a statutory bureau in
the Treasury Department. Organizationally, FinCEN is part of Treasury's
Office of Terrorism and Financial Intelligence, which is the
department's policy and enforcement entity regarding terrorist
financing, money laundering, financial crime, and sanctions issues.
Treasury's budget request for fiscal year 2007 included $91.3 million
(and 352 full-time-equivalent personnel) to support FinCEN's mission of
safeguarding the financial system from abuses of money laundering,
terrorist financing, and other financial crime. FinCEN carries out this
broad mission by, among other means, administering the Bank Secrecy Act
(BSA)[Footnote 8] and networking with domestic regulatory, law
enforcement, and intelligence agencies as well as with foreign
counterparts.
Treasury Department Has a Key Role in Promoting International
Cooperation to Combat Money Laundering and Terrorist Financing:
Section 330 of the USA PATRIOT Act expresses the sense of the Congress
that the President should direct the Secretary of State, the Attorney
General, or the Secretary of the Treasury to enter into negotiations
with foreign jurisdictions to facilitate cooperative efforts to combat
money laundering and terrorist financing. State Department, Justice
Department, and Federal Reserve Board officials told us that the
Treasury Department plays a lead role in addressing these efforts.
According to Treasury Department officials, the U.S. interagency
community has been acting to accomplish the goals articulated in
section 330 through its interactions with FATF and the FATF-style
regional bodies to ensure global compliance with international
standards for combating money laundering and terrorist financing.
Treasury officials also told us that enactment of section 330 provided
a welcomed congressional endorsement of long-standing U.S. government
policy to actively engage and negotiate with foreign jurisdictions
through the medium of FATF and the related FATF-style regional bodies.
Further, in conjunction with foreign negotiations, Treasury considers
another provision of the USA PATRIOT Act--section 311--to be a useful
mechanism for helping to promote compliance with standards.
The Congress Has Encouraged International Cooperative Efforts:
Through section 330 of the USA PATRIOT Act, Congress has encouraged the
United States to engage in international cooperative efforts to combat
money laundering and terrorism. Specifically, section 330 specifies,
"It is the sense of the Congress that the President should direct the
Secretary of State, the Attorney General, or the Secretary of the
Treasury, as appropriate, and in consultation with the Board of
Governors of the Federal Reserve, to seek to enter into negotiations
with the appropriate financial supervisory agencies and other officials
of any foreign country the financial institutions of which do business
with United States financial institutions or which may be utilized by
any foreign terrorist organization (as designated under section 219 of
the Immigration and Nationality Act), any person who is a member or
representative of any such organization, or any person engaged in money
laundering or financial or other crimes."
In carrying out such negotiations, section 330 further specifies the
sense of the Congress that:
"the President should direct the Secretary of State, the Attorney
General, or the Secretary of the Treasury, as appropriate, to seek to
enter into and further cooperative efforts, voluntary exchanges, the
use of letters rogatory,[Footnote 9] mutual legal assistance treaties,
and international agreements to (1) ensure that foreign banks and other
financial institutions maintain adequate records of transaction and
account information relating to any foreign terrorist organization (as
designated under section 219 of the Immigration and Nationality Act),
any person who is a member or representative of any such organization,
or any person engaged in money laundering or financial or other crimes;
and (2) establish a mechanism whereby such records may be made
available to United States law enforcement officials and domestic
financial institution supervisors, when appropriate."
Section 330 does not constitute an express mandate--that is, section
330 does not impose an affirmative obligation on any agency or official
to enter into negotiations. Nonetheless, the language of section 330
does suggest that efforts should be undertaken to engage in appropriate
negotiations.
Treasury and the Interagency Community Engage in Multilateral Efforts
to Promote International Cooperation:
State Department, Justice Department, and Federal Reserve Board
officials told us that the lead role regarding the efforts encouraged
by section 330 of the USA PATRIOT Act is held by the Treasury
Department. According to the Treasury Department, the U.S. interagency
community is fulfilling section 330 by actively engaging and
negotiating with foreign jurisdictions through the medium of FATF and
the related FATF-style regional bodies. The U.S. delegation to FATF,
which is headed by the Deputy Assistant Secretary of the Treasury's
Office of Terrorist Finance and Financial Crime, includes
representatives of the Departments of Homeland Security, Justice, and
State; the federal financial regulators; and the National Security
Council.
Regarding efforts encouraged by section 330, Treasury's Office of
Terrorist Finance and Financial Crime said that the United States--
working through FATF, the FATF-style regional bodies, the International
Monetary Fund, and the World Bank--has led efforts to develop a global
system to ensure that all countries adopt and are assessed against
international standards for protecting financial systems and
jurisdictions from money laundering and terrorist financing. As
mentioned previously, these international standards consist of the FATF
"Forty Recommendations on Money Laundering" and "Nine Special
Recommendations on Terrorist Financing" (see app. II).
Treasury testimony at a congressional hearing in July 2005 before the
Senate Committee on Banking, Housing, and Urban Affairs also cited the
benefits of international standard-setting bodies. Regarding U.S.
efforts and participation in these bodies, the Treasury Under
Secretary's prepared statement included the following points:[Footnote
10]
* "The Financial Action Task Force (FATF) sets the global standards for
anti-money laundering and counter terrorist financing, and it is also
through this venue that we promote results. Treasury, along with our
counterparts at State, Justice, and Homeland Security, has taken an
active role in this 33-member body which articulates international
standards in the form of recommendations, guidelines, and best
practices to aid countries in developing their own specific anti-money
laundering and counter-terrorist financing laws and regulations. … The
success and force of FATF lie not only in the mutual evaluation process
to which it holds its own members, but also in the emergence of FATF-
style regional bodies … that agree to adopt FATF standards and model
themselves accordingly on a regional level."
* "Hawala, a relationship-based system of money remittances, plays a
prominent role in the financial systems of the Middle East. …
Internationally, Treasury leadership in the FATF has brought the issue
of hawala to the forefront, resulting in implementation of FATF Special
Recommendation VI, which requires all FATF countries to ensure that
individuals and entities providing money transmission services must be
licensed and registered, and subjected to the international standards
set out by FATF."
* "As governments apply stricter oversight and controls to banks, wire
transmitters, and other traditional methods of moving money, we are
witnessing terrorists and criminals resorting to bulk cash smuggling.
FATF Special Recommendation IX was issued in late 2004 to address this
problem and it calls upon countries to monitor cross-border
transportation of currency and to make sanctions available against
those who make false declarations or disclosures in this regard. This
recommendation has already prompted changes in legislation abroad."
Further, on July 29, 2005, the United Nations Security Council
unanimously adopted a U.S.-sponsored resolution (Resolution 1617) that,
among other matters, "strongly urges" all member states to "implement
the comprehensive, international standards" embodied in the FATF 40
plus 9 recommendations.[Footnote 11] Subsequently, at its most recent
plenary meeting (October 12 to 14, 2005), FATF noted that "formal
endorsement of the FATF standards by the U.N. Security Council is a
major step toward effective implementation of the Recommendations
throughout the world."
Regarding the U.S. government's continuing efforts to actively engage
and negotiate with foreign jurisdictions as encouraged by section 330,
Treasury's Office of Terrorist Finance and Financial Crime said that
outreach to the international community to enhance global best
practices to combat money laundering and terrorist financing involves
various challenges. These challenges include ensuring that the
international standards are current in reference to emerging trends and
technology and are balanced and flexible enough to be relevant and
applicable to all countries and situations, as well as ensuring that
evaluations or assessments of countries are conducted on a consistent
basis and manner.
Treasury Views Section 330 as a Congressional Endorsement of Long-
standing U.S. Government Policy and a Stimulus for Continued Efforts:
According to Treasury's Office of Terrorist Finance and Financial
Crime, interagency efforts to work through FATF and the FATF-style
regional bodies to help ensure global compliance with international
standards for combating money laundering and terrorist financing is a
long-standing policy of the U.S. government--a policy that has had
strong support from the White House. In further elaboration, Treasury
officials said that because working through FATF and the FATF-style
regional bodies is a long-standing policy, no specific guidance was
needed from the President or the White House to implement section 330.
That is, Treasury was already seeking to accomplish the goals
articulated in section 330. The officials commented that passage of
section 330 did not cause Treasury or the interagency community to
alter the objectives of ongoing or planned negotiations. In sum, the
Treasury officials stressed that enactment of section 330 provided a
welcomed congressional endorsement of long-standing U.S. government
policy and also provided a stimulus for continued efforts in
negotiating with foreign jurisdictions.
Treasury Considers Section 311 as Particularly Relevant for Negotiating
with Foreign Jurisdictions:
As an incentive or pressure mechanism that can be used in conjunction
with foreign negotiations, Treasury considers section 311 of the USA
PATRIOT Act to be particularly relevant for helping to ensure global
compliance with international standards for combating money laundering
and terrorist financing.[Footnote 12] Section 311 authorizes the
Secretary of the Treasury--in consultation with the Secretary of State
and the Attorney General and with consideration of multiple factors--to
find that reasonable grounds exist for concluding that a foreign
jurisdiction, a financial institution, a class of transactions, or a
type of account is of "primary money laundering concern." Such a
designation is a precursor or condition precedent for taking one or
more special measures. For instance, following a designation and with
additional consultation and consideration of specific factors, the
Secretary of the Treasury may require U.S. financial institutions to
take certain "special measures" with respect to applicable
jurisdictions, institutions, accounts, or transactions. The special
measures can range from enhanced recordkeeping or reporting obligations
to a requirement to terminate and not open correspondent accounts
involving the primary money laundering concern.
Since the USA PATRIOT Act was signed into law in October 2001, section
311 designations have been announced for three foreign jurisdictions
(Ukraine, Nauru, and Burma). Treasury's first use of section 311
authority was in December 2002, with the designation of Ukraine and
Nauru as being of primary money laundering concern. A third
jurisdiction, Burma, was designated in November 2003.
In addition to foreign jurisdiction designations, Treasury has also
used section 311 authority to designate certain foreign financial
institutions as being of primary money laundering concern. Examples
include Myanmar Mayflower Bank and Asia Wealth Bank (November 2003),
Commercial Bank of Syria (May 2004), First Merchant Bank of the
"Turkish Republic of Northern Cyprus" and Infobank of Belarus (August
2004), and Multibanka and VEF Banka of Latvia (April 2005). More
recently, in September 2005, Treasury designated Banco Delta Asia SARL,
which is located in the Macau Special Administrative Region, China.
In discussing section 311 with us, Treasury's Office of Terrorist
Finance and Financial Crime officials characterized designations--even
without subsequent special measures being taken--as a very useful tool
for bringing pressure on countries and institutions to meet
international standards. For example, after being designated by
Treasury in December 2002, Ukraine subsequently took steps to address
deficiencies by amending its anti-money-laundering law, its banking and
financial services laws, and its criminal code. Accordingly, Treasury
revoked its designation in April 2003.
Enhancing the Capabilities of Financial Intelligence Units Is a
Continuing Challenge:
Since 1995, the number of FIUs recognized by the Egmont Group has
increased more than sevenfold. Attributable reasons include FATF-
related efforts, as well as those of the federal interagency community.
A particular focus of FinCEN--working with federal interagency
partners--has been to provide training and technical assistance to help
create and enhance the capabilities of FIUs. Given the significant
growth in the number of FIUs recognized by the Egmont Group, which now
totals 101, more attention is being focused on improving the
capabilities of existing units, especially in reference to combating
terrorist financing--an operational task now included in the Egmont
Group's definition of an FIU. Generally, FIUs are evaluated as part of
an overall methodology designed to assess a country's compliance with
the international standards contained in the FATF 40 plus 9
recommendations for combating money laundering and terrorist financing.
According to FinCEN, its efforts to improve the capabilities of foreign
FIUs must be achieved through cooperation, collaboration, and
consensus--given that the Egmont Group is responsible for dealing with
its members' shortcomings or noncompliance with standards.
The Number of Financial Intelligence Units Has Increased Significantly
Since 1995:
Over the past decade, the number of FIUs recognized by the Egmont Group
increased more than sevenfold, from 14 in 1995 to 101 as of July 2005
(see fig. 1).
Figure 1: Annual Growth in the Number of Financial Intelligence Units:
[See PDF for image]
[A] As of July 2005.
[End of figure]
A goal of the Egmont Group is to provide a forum for FIUs to improve
support to their respective national programs for combating money
laundering and terrorist financing. Egmont Group membership is not
automatic for new or nascent FIUs. Rather, the Egmont Group has a Legal
Working Group responsible for assessing each FIU-candidate to ensure
that the prospective member meets admission criteria. For instance, the
assessment criteria are used to determine whether the FIU-candidate
meets the Egmont definition of an FIU, has reached full operational
status, and is legally capable and willing to cooperate on the basis of
Egmont principles (see app. III). Also, among other responsibilities,
an Egmont Group member that sponsors or mentors the FIU-candidate is
expected to have first-hand experience (including an on-site visit) to
confirm the operational status of the candidate FIU.
Growth in the Number of Financial Intelligence Units Is Attributable to
Various Reasons:
The significant growth in the number of FIUs is attributable to various
reasons, including FATF-related efforts to establish international
standards and promote policies for combating money laundering and
terrorist financing. For example, FATF recommendation number 26 (see
app. II) specifies that countries should establish an FIU that serves
as a national center for receiving (and, as permitted, requesting),
analyzing, and disseminating suspicious transaction reports and other
information regarding potential money laundering or terrorist
financing. Moreover, a contributing role has been played by the Egmont
Group, which has an Outreach Working Group to identify candidate
countries for membership and help them meet international standards.
Further, the growth in the number of FIUs is attributable partly to
federal interagency efforts, including training and technical support
provided by FinCEN and Treasury's Office of Technical Assistance, as
well as funding provided by the State Department. As a member of the
Egmont Group since 1995, FinCEN in particular has focused its global
efforts on assisting jurisdictions establish new FIUs and improving
existing units. For instance, in helping to establish new FIUs,
FinCEN's assistance has included a variety of activities, such as
performing country assessments, advising or commenting on draft FIU
legislation, providing seminars on the combating of money laundering,
conducting training courses for FIU personnel, and furnishing technical
advice on computer systems. According to FinCEN, much of its work now
involves strengthening existing FIUs. In this regard, FinCEN's
activities include conducting personnel exchanges (from foreign FIU to
FinCEN and vice versa) and participating in operational workshops and
other training initiatives. Also, FinCEN noted that much of its
assistance involves regional or multilateral efforts, such as working
closely with the Egmont Group of FIUs, the United Nations, and
multilateral development banks.
As an example of a recent FIU-related activity, FinCEN reported that it
sent a four-person team to Saudi Arabia in the first quarter of fiscal
year 2006 to conduct an on-site assessment and provide various
presentations (covering, for example, information exchange issues) to
employees of the Saudi FIU. In addition, FinCEN's activities for fiscal
year 2005 included providing training (either abroad or at FinCEN) to
FIU representatives from various nations, such as Argentina, Brazil,
China, Guatemala, South Korea, Paraguay, and Sri Lanka. For fiscal year
2004, FinCEN reported that it joined with the United Arab Emirates to
host representatives from Afghanistan, Bangladesh, Maldives, Pakistan,
and Sri Lanka on developing FIUs. Also, FinCEN's reported activities
for fiscal year 2003 include:
* conducting personnel exchanges with Egmont Group allies from several
Baltic nations (i.e., Estonia, Latvia, and Lithuania), Bolivia, Turkey,
South Korea, Ukraine, and Russia;
* co-hosting regional training workshops in Malaysia and Mauritius;
and:
* sponsoring Bahrain, Mauritius, and South Africa as new members into
the Egmont Group--with the latter two countries representing Africa's
first representatives in the group.
* Similarly, according to the State Department, recent activities of
Treasury's Office of Technical Assistance include (1) providing
training and technical assistance to FIUs in Paraguay and Peru, (2)
helping the Senegal FIU achieve operational status, and (3) working
with Ukraine to streamline its national FIU.[Footnote 13]
* Generally, U.S. government assistance in creating and strengthening
FIUs can be viewed as being one strategic element among several
designed to enhance the capacity of global partners. For instance, the
training and technical assistance that U.S. agencies provide to
vulnerable countries are intended to help the countries develop five
elements that, according to the State Department, are needed for an
effective anti-money-laundering and counter-terrorism-financing
regimes--a legal framework, a financial regulatory system, law
enforcement capabilities, judicial and prosecutorial processes, and an
appropriate FIU. However, despite the formation of an interagency
coordination entity--the Terrorist Financing Working Group--U.S.
efforts to coordinate the delivery of training and technical assistance
lack an integrated strategic plan, as we recently reported.[Footnote
14] Among other matters, our October 2005 report noted disagreements
between the State and Treasury departments on procedures and practices
for delivering training and technical assistance as well as
disagreements regarding interagency leadership and coordination
responsibilities. The report recommended that the Secretary of State
and the Secretary of the Treasury develop an integrated strategic plan
and enter into an agreement specifying the roles of each department,
bureau, and office with respect to conducting needs assessments and
delivering training and technical assistance. In March 2006, the State
Department provided the Congress a written statement (as required under
31 U.S Code § 720) regarding action taken on the recommendation. State
commented that several steps were being taken to enhance interagency
coordination. The written statement noted, for example, that the
National Security Council and the departments of State, Justice, the
Treasury, and Homeland Security were reviewing the work of the
Terrorist Financing Working Group in light of recent years' experience,
with a view to making any appropriate updates and adjustments to
enhance its effectiveness.
Also, during our review, State Department officials noted one area
where they would like to augment U.S. assistance to nascent FIUs. This
area involves ensuring that nascent FIUs have appropriate information
technology (hardware and software). The officials emphasized that such
technology is essential to appropriately functioning FIUs. In this
regard, the officials said that the State Department and FinCEN are
engaged in ongoing discussions on how to augment such assistance.
Further regarding future directions, FinCEN's Deputy Director (who also
chairs the Egmont Committee[Footnote 15]) commented that there will be
continuing efforts to establish new FIUs, particularly in priority
regions (such as the Middle East and Central Asia) critical to
combating money laundering and terrorist financing. Moreover, given the
dynamic growth in the Egmont Group's membership, the Deputy Director
noted that the Egmont Committee will be giving more attention to
improving the capabilities or effectiveness of existing FIUs.
Capabilities of Financial Intelligence Units: Some Aspects Are Covered
in Assessments of Compliance with FATF Recommendations:
Generally, FIUs are evaluated as part of an overall methodology
designed to assess a country's compliance with the international
standards contained in the FATF 40 plus 9 recommendations for combating
money laundering and terrorist financing (see app. II).
As mentioned previously, FATF recommendations provide international
standards for combating money laundering and terrorist financing. In
this regard:
"A key element in the fight against money laundering and the financing
of terrorism is the need for countries to be monitored and evaluated,
with respect to these international standards. The mutual evaluations
conducted by the FATF and the FATF-style regional bodies, as well as
assessments conducted by the IMF and the World Bank, are a vital
mechanism for ensuring that the FATF Recommendations are effectively
implemented by all countries."[Footnote 16]
Our research and inquiries identified one published study that
presented comparative or multicountry results based on mutual
evaluations of nations' compliance with the FATF recommendations. The
study--Twelve-Month Pilot Program of Anti-Money-Laundering and
Combating the Financing of Terrorism (AML/CFT) Assessments-Joint Report
on the Review of the Pilot Program, March 10, 2004--was prepared
jointly by IMF and the World Bank. The study summarized the results of
the mutual evaluations of 41 jurisdictions, conducted during the 12-
month period that ended in October 2003.[Footnote 17] The assessments
used a common methodology adopted by FATF and endorsed by the Executive
Boards of IMF and the World Bank.[Footnote 18] Of the 41 assessments,
33 were conducted by IMF or the World Bank, and 8 were conducted by
FATF and the FATF-style regional bodies.
In their March 2004 joint report, IMF and the World Bank presented
assessment findings for the 41 jurisdictions in a summary format,
rather than associating compliance levels or deficiencies with any
individual country. For instance, the report made the following general
observations:
* "Overall compliance with the FATF 40+8 Recommendations is uneven
across jurisdictions. Many jurisdictions show a high level of
compliance with the original FATF 40 Recommendations. The most
prevalent deficiency among all assessments is weaker compliance with
the Eight Special Recommendations on terrorist financing."
* "There is generally a higher level of compliance in high and middle
income countries than in low income countries. Higher income countries
typically have well developed AML/CFT regimes but with specific gaps,
especially concerning the Eight Special Recommendations on terrorist
financing."
* The joint report did not separately present or discuss assessment
findings related to the functioning or effectiveness of FIUs. However,
two of the 13 main weaknesses identified are directly related to FIUs.
These two weaknesses (see table 1) are topic 12 (no requirement to
report promptly to the FIU if financial institutions suspect that funds
stem from criminal activity) and topic 13 (poor international exchange
of information relating to suspicious transactions and to persons or
corporations involved).
Table 1: Main Weaknesses Identified in Assessments of Compliance with
FATF Recommendations for Combating Money Laundering and Terrorist
Financing:
Reference number: 1;
Weakness identified: Topic: Poor assistance to other countries'
financing of terrorism investigations;
Total number of countries assessed: 40;
Assessed countries found "materially noncompliant" or "noncompliant"
Number: 19;
Assessed countries found "materially noncompliant" or "noncompliant"
Percent of total: 48%.
Reference number: 2;
Weakness identified: Topic: Poor attention to transactions with higher
risk countries;
Total number of countries assessed: 41;
Assessed countries found "materially noncompliant" or "noncompliant"
Number: 18;
Assessed countries found "materially noncompliant" or "noncompliant"
Percent of total: 44.
Reference number: 3;
Weakness identified: Topic: Poor detection and analysis of unusual
large or otherwise suspicious transactions;
Total number of countries assessed: 40;
Assessed countries found "materially noncompliant" or "noncompliant"
Number: 17;
Assessed countries found "materially noncompliant" or "noncompliant"
Percent of total: 43.
Reference number: 4;
Weakness identified: Topic: No criminalization of the financing of
terrorism and terrorist organizations;
Total number of countries assessed: 40;
Assessed countries found "materially noncompliant" or "noncompliant"
Number: 17;
Assessed countries found "materially noncompliant" or "noncompliant"
Percent of total: 43.
Reference number: 5;
Weakness identified: Topic: Inadequate systems to report suspicious
transactions linked to terrorism;
Total number of countries assessed: 39;
Assessed countries found "materially noncompliant" or "noncompliant"
Number: 16;
Assessed countries found "materially noncompliant" or "noncompliant"
Percent of total: 41.
Reference number: 6;
Weakness identified: Topic: Inadequate anti-money- laundering programs
in supervised banks, financial institutions or intermediaries;
authority to cooperate with judicial and law enforcement;
Total number of countries assessed: 40;
Assessed countries found "materially noncompliant" or "noncompliant"
Number: 16;
Assessed countries found "materially noncompliant" or "noncompliant"
Percent of total: 40.
Reference number: 7;
Weakness identified: Topic: Inadequate guidelines for suspicious
transactions' detection;
Total number of countries assessed: 41;
Assessed countries found "materially noncompliant" or "noncompliant"
Number: 16;
Assessed countries found "materially noncompliant" or "noncompliant"
Percent of total: 39.
Reference number: 8;
Weakness identified: Topic: Inadequate measures to freeze and
confiscate terrorist assets;
Total number of countries assessed: 40;
Assessed countries found "materially noncompliant" or "noncompliant"
Number: 14;
Assessed countries found "materially noncompliant" or "noncompliant"
Percent of total: 35.
Reference number: 9;
Weakness identified: Topic: No requirement to take reasonable measures
to obtain information about customer identity;
Total number of countries assessed: 41;
Assessed countries found "materially noncompliant" or "noncompliant"
Number: 14;
Assessed countries found "materially noncompliant" or "noncompliant"
Percent of total: 34.
Reference number: 10;
Weakness identified: Topic: Inadequate procedures for mutual assistance
in criminal matters for production of records, search of persons and
premises, seizure and obtaining of evidence for money laundering
investigations and prosecutions;
Total number of countries assessed: 41;
Assessed countries found "materially noncompliant" or "noncompliant"
Number: 14;
Assessed countries found "materially noncompliant" or "noncompliant"
Percent of total: 34.
Reference number: 11;
Weakness identified: Topic: Inadequate internal policies, procedures,
controls, audit, and training programs;
Total number of countries assessed: 40;
Assessed countries found "materially noncompliant" or "noncompliant"
Number: 13;
Assessed countries found "materially noncompliant" or "noncompliant"
Percent of total: 33.
Reference number: 12;
Weakness identified: Topic: No requirement to report promptly to the
financial intelligence unit if financial institutions suspect that
funds stem from a criminal activity;
Total number of countries assessed: 41;
Assessed countries found "materially noncompliant" or "noncompliant"
Number: 13;
Assessed countries found "materially noncompliant" or "noncompliant"
Percent of total: 32.
Reference number: 13;
Weakness identified: Topic: Poor international exchange of information
relating to suspicious transactions and to persons or corporations
involved;
Total number of countries assessed: 41;
Assessed countries found "materially noncompliant" or "noncompliant"
Number: 13;
Assessed countries found "materially noncompliant" or "noncompliant"
Percent of total: 32.
Source: International Monetary Fund and World Bank, Twelve-Month Pilot
Program of Anti-Money-Laundering and Combating the Financing of
Terrorism (AML/CFT) Assessments--Joint Report on the Review of the
Pilot Program (March 10, 2004, annex II, table 12, p, 55).
Notes: The assessments were conducted during the 12-month period ending
in October 2003.
[End of table]
According to the joint report, the 41 assessments in the pilot program
included compliance ratings for 27 of the FATF 40 Recommendations and 7
of the 8 Special Recommendations. Some recommendations were not rated
because they had not yet fully come into force or they were not
explicitly assessable, given their nature. The assessment methodology
called for use of a four-grade rating scale--compliant, largely
compliant, materially noncompliant, and noncompliant.
The joint report noted that assessments using the common methodology
are increasingly used as a diagnostic tool to identify technical
assistance needs, including assistance for creating and strengthening
FIUs.
Although not published, an overview of more recent FIU-related
assessment findings was presented on July 1, 2005, in Washington, D.C.,
at the annual plenary meeting of the Egmont Group. Specifically, an IMF
representative presented summary information covering 29 countries,
whose names were not disclosed. The IMF representative noted that the
information was derived from the results of mutual evaluations or
assessments conducted during 2003 to 2005 using the common methodology
endorsed by FATF, IMF, and the World Bank. According to the
presentation, the findings of the assessments indicated that many of
the FIUs had shortcomings, such as a shortage of staff (one-third of
the total), a lack of political independence (one-fourth), and legal
obstacles to international cooperation (one-third). Other shortcomings
cited were (scope not quantified) lack of clear legal framework, lack
of strategic analysis tools, lack of access to appropriate information
and databases, excessive transmission of information to law enforcement
agencies, lack of guidelines on the identification of suspicious
behavior, lack of feedback, lack of powers to sanction failure to
report, and legal obstacles to the transmission of suspicious
transaction reports.
In its January 2006 response to our inquiry, the State Department said
that the U.S. government and other major donors generally are well
informed about the existence of FIUs (and their capabilities and
deficiencies) in those jurisdictions in which the donors wish to
participate. State commented that while mutual evaluations are but one
source of information and can be outdated before being discussed at
meetings of the FATF-style regional bodies, these evaluations are
useful in identifying deficiencies and prompting corrective action by
the respective jurisdiction.
Dealing with FIU Shortcomings or Noncompliance with Standards Is a
Responsibility of the Egmont Group:
According to FinCEN's Deputy Director (and chair of the Egmont
Committee), the Egmont Group is responsible for dealing with its
members' shortcomings or noncompliance with standards. That is, even
though influential, FinCEN has only one vote within the 101-member
Egmont Group. Therefore, FinCEN's efforts to improve the capabilities
of foreign FIUs must be achieved through cooperation, collaboration,
and consensus.
To better address Egmont Group members' shortcomings or noncompliance
with standards, the Deputy Director commented that his preference is
for full transparency of assessment findings. In this regard, in its
most recent annual report, FATF announced a new process for reporting
assessment teams' findings that are compiled in mutual assessment
reports. Specifically, according to FATF,
"A summary of each report will be published on the FATF website and
FATF members have agreed in principle to make public the full mutual
evaluation reports (with the ultimate decision being left to each FATF
member for its own report). The FATF intends to provide comprehensive
information on its members' actions in combating money laundering and
terrorist financing."[Footnote 19]
The Deputy Director also commented that the most significant functional
change for the Egmont Group in recent years was expansion of the
definition of an FIU in response to the terrorist attacks of September
11. Shortly thereafter, at an October 2001 special meeting of the
Egmont Group in Washington, D.C., the members expressed a sense that
the group's operational functions should expand beyond money laundering
to address terrorist financing. Later, at the Egmont Group's 12th
plenary meeting--held during June 21 to 25, 2004, and hosted in
Guernsey, Channel Islands--the definition of "financial intelligence
unit" was amended to include a reference to terrorist financing. This
new definition is reflected in the Statement of Purpose of the Egmont
Group of Financial Intelligence Units, which resulted from the Guernsey
plenary meeting. Thus, combating terrorist financing now is included in
the definition of tasks an FIU is required to perform.
According to the Deputy Director, existing FIUs have a grace period of
at least 2 years to become compliant with the new definition. He noted
that throughout the history of the Egmont Group, no member has ever
been excluded from continuing participation. The Deputy Director added,
however, that plenary meetings in recent years have begun to address
the issue of noncompliance. For example, according to documentation of
Egmont Group meetings:[Footnote 20]
* The 11th Egmont Group plenary, held July 21 to 25, 2003, in Sydney,
Australia, marked the "first attempt to establish a procedure for
dealing with members that may no longer meet Egmont standards."
* At the 12th Egmont plenary session, held June 21 to 25, 2004, in
Guernsey, Channel Islands, "a paper was drafted which outlines the
procedures to address those Egmont members that may no longer meet the
established definitions and standards of the Egmont Group, or that fail
to exchange information."
* The Deputy Director said that a paper on noncompliance was also
presented at the most recent Egmont plenary meeting, held June 30 to
July 1, 2005, in Washington, D.C. He added that the issue will be
revisited at the 2006 plenary meeting in Cyprus. He explained that
dealing with noncompliance will be a difficult issue and likely will
reflect a go-slow approach. For instance, the Deputy Director opined
that before administrative action (such as exclusion) is taken, the
noncompliant member probably would be offered ameliorating assistance
over an extended period of time.
FinCEN Is Taking Various Actions to Maximize Its Performance as a
Global Partner, but More Comprehensive Feedback from Financial
Intelligence Units Would Be Useful:
Since the events of September 11, FinCEN's most important operational
priority has been to provide counterterrorism support to the law
enforcement and intelligence community. In January 2006, to enhance its
support role, FinCEN assigned an analyst to the FBI's Terrorist
Financing Operations Section. Also, among other actions to maximize
performance as a global partner in combating money laundering and
terrorist financing, FinCEN is modernizing the Egmont Secure Web--the
Internet-based system developed and maintained by FinCEN and used by
FIUs worldwide to exchange information. Further, FinCEN is allocating
additional staff resources to facilitate responding to foreign requests
for assistance and is developing a new case management system. However,
FinCEN's most recent customer satisfaction survey of FIUs had limited
coverage and a very low response rate, partly because there was no
follow-up with nonrespondents. Future surveys would need to be more
inclusive and incorporate better survey development and administration
practices, such as follow-up efforts to achieve higher response rates,
if the surveys are to serve as a useful management information tool for
monitoring and enhancing performance.
Challenges for FinCEN Include Redirecting Its Efforts to More Complex
Cases as well as Supporting the Nation's Focus on Detecting and
Preventing Terrorist Financing:
FinCEN has recognized that it faces various challenges, such as
redirecting its efforts to more complex cases, some of which inevitably
have international linkages. Another important challenge is to support
the nation's focus on detecting and preventing terrorist financing,
which also can involve international linkages.
At a congressional hearing held on April 29, 2004, the FinCEN Director
testified that FinCEN must step up its international engagement with
counterparts around the world by, among other means, enhancing:
"the FinCEN analytical product we provide to our global counterparts
when asked for information. Today, we are primarily providing the
results of a data check. We think we owe our colleagues more. … [W]e
will also be making more requests for information and analysis from our
partners--particularly when the issue involves terrorist financing or
money laundering."[Footnote 21]
Similarly, FinCEN's strategic plan for fiscal years 2006 to 2008 noted
that "a strategic challenge is to make the transition away from
relatively simple query services that we have historically provided to
law enforcement agencies, so that we can redirect our efforts toward
more complex analysis and investigative support."[Footnote 22] Also,
the strategic plan stated:
"Like the rest of America, the Financial Crimes Enforcement Network is
still adapting to changes triggered by the events of 9/11. These
changes include … supporting the Department of the Treasury's new focus
on detecting and preventing terrorist financing. … While the Financial
Crimes Enforcement Network has historically developed the information,
analytical processes, and tools required to detect money laundering, we
need to develop additional tools--and to gain access to additional
data, including classified data--in order to better detect terrorist
financing."
Further elaboration of planned efforts to enhance FinCEN's analytical
capabilities is presented in Treasury's budget submission for fiscal
year 2006:
"FinCEN must upgrade the quality of its analysis related to terrorist
financing and money laundering. FinCEN has begun a major initiative to
enhance the ability of FinCEN analysts to consider all information
sources, including, as appropriate, classified data, when analyzing
money laundering and terrorist financing methods. To be successful,
this will require an overall upgrade to the security environment,
significant investments in training and building analytical skills
relating to terrorist financing, upgrade of the analytical software
related to text mining, enhanced availability of classified sources …
and an increase in overall personnel security classifications to allow
the integration of all information sources."[Footnote 23]
A primary data source used by FinCEN analysts is the government's
database of BSA-related forms, including suspicious activity reports
(SARs) filed by financial institutions. An integral part of FinCEN's
counterterrorism strategy involves reviewing and referring all SARs
related to terrorist financing to law enforcement and intelligence
agencies. For instance, as of September 2005, FinCEN reported that it
had proactively developed and referred a total of 526 potential
terrorist financing leads to appropriate agencies, such as the FBI's
Terrorist Financing Operations Section and Joint Terrorism Task Forces.
In 2004, the FBI contacted the Director of FinCEN and requested bulk
access to BSA reports for ingestion into the FBI's system, the
Investigative Data Warehouse (IDW). The FinCEN Director recognized the
benefits of having the data available in this format and approved the
request. According to the FBI:
"[The IDW] is a centralized, web-enabled, closed system repository for
intelligence and investigative data. This system, maintained by the
FBI, allows appropriately trained and authorized personnel throughout
the country to query for information of relevance to investigative and
intelligence matters. In addition to BSA data provided by FinCEN, IDW
includes information contained in myriad other law enforcement and
intelligence community databases. The benefits of IDW include the
ability to efficiently and effectively access multiple databases in a
single query. As a result of the development of this robust information
technology, a review of data that might have previously taken days or
months now takes only minutes or seconds."[Footnote 24]
The FBI noted that FinCEN provides the IDW with regular updates of the
BSA data. Also, the FBI told us that it has not had any discussions
with FinCEN regarding ways to enhance FinCEN's link-analysis
capability. Generally, link analysis involves use of data mining and
other computerized techniques to identify relationships across
organizations, people, places, events, etc. Rather, the FBI noted that
it requested FinCEN to assign an analyst to the FBI's Terrorist
Financing Operations Section. Such an assignment, the FBI explained,
would provide FinCEN access to additional data sources, which would be
useful to FinCEN in performing its various roles. FinCEN told us that
it accepted this offer almost immediately, and, subsequently, in
January 2006, the designated FinCEN analyst reported to the FBI to
begin initial training (2 weeks) with Terrorist Financing Operations
Section personnel. More recently, in March 2006, in providing us
feedback on this arrangement and other interactions, the FBI commented
that it highly values its strong partnership with FinCEN.
In further reference to analyzing SARs and developing counterterrorism-
related leads, we note that FinCEN developed and transmitted a total of
four referrals to FIUs during the past 4 fiscal years, 2002 through
2005. Of these four referrals, according to FinCEN, two were sent to
Spain's FIU, one was sent to the United Kingdom's FIU, and one was sent
to both Canada's FIU and the United Kingdom's FIU. In addition to these
proactive referrals, FinCEN emphasized that it regularly interacts with
foreign FIUs to explore opportunities for working on issues of mutual
interest. These efforts, according to FinCEN, essentially achieve the
same goals and results as proactive referrals--and perhaps in a more
tailored and effective manner.
Modernizing the Egmont Secure Web: Technology Is Critical to
Information Sharing, a Core Function of Financial Intelligence Units:
Facilitating the cross-border exchange of information is a core
function of FIUs. FinCEN plays a key role in fostering the secure
exchange of information among FIUs, given that FinCEN operates and
maintains the Egmont Secure Web. An Internet-based system, the Egmont
Secure Web is used by FIUs primarily for its encrypted e-mail
capability to exchange sensitive case information. In 1997, FinCEN
initially launched the Egmont Secure Web, and its development was
funded solely by the Treasury Forfeiture Fund.[Footnote 25]
Operationally, according to FinCEN, the Egmont Secure Web is of
paramount importance to FIUs. For instance, the Egmont Group's
guidelines--Best Practices for the Exchange of Information between
Financial Intelligence Units--state that, where appropriate, FIUs
should use the Egmont Secure Web, which permits secure online
information sharing among members. According to FinCEN, the system has
encouraged unprecedented cooperation among FIUs because of security,
ease of use, and quick response time. Also, FinCEN officials explained
that the Egmont Secure Web provides online access to many reference
materials, such as official Egmont procedural documents, FIU contact
information, case examples, recently noted trends, and minutes from all
Egmont meetings.
A large majority (96) of the Egmont Group's 101 members are connected
to the Egmont Secure Web. As of February 2006, 67 of the 96 FIUs each
had one Egmont Secure Web user account, and 29 other FIUs each had two
or more user accounts (see table 2). With 49 user accounts, FinCEN's
total is nearly three times that of Belgium's FIU, which has the second
largest number of user accounts (18). For fiscal year 2004, FinCEN
reported that it supported 844 law enforcement cases via information
exchanges with foreign jurisdictions and that an estimated 98 percent
of FinCEN's responses to these jurisdictions went through the Egmont
Secure Web.
Table 2: Financial Intelligence Units Connected to Egmont Secure Web
and Number of User Accounts per Country (as of February 2006):
Number of Egmont Secure Web user accounts per country: 1;
Number and names of countries connected to Egmont Secure Web: Number of
countries: 67;
Number and names of countries connected to Egmont Secure Web: [Empty];
Number and names of countries connected to Egmont Secure Web: Names of
countries: Albania, Andorra, Anguilla, Aruba, Austria, Bahrain,
Barbados, Belize, Bermuda, Bolivia, Bosnia and Herzegovina, Brazil,
Bulgaria, Cayman Islands, Colombia, Cook Islands, Costa Rica, Croatia,
Cyprus, Czech Republic, Dominica, Dominican Republic, Egypt, Estonia,
Finland, Germany, Gibraltar, Grenada, Guatemala, Guernsey, Hong Kong,
Hungary, Iceland, Ireland, Isle of Man, Israel, Japan, Jersey, Lebanon,
Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Marshall Islands,
Mexico, Monaco, Netherlands Antilles, New Zealand, Panama, Paraguay,
Peru, Portugal, Qatar, Romania, Russia, San Marino, Singapore,
Slovakia, St. Vincent and the Grenadines, Sweden, Switzerland, Taiwan,
Turkey, United Arab Emirates, Vanuatu, and Venezuela;
Total number of Egmont Secure Web user accounts: 67.
Number of Egmont Secure Web user accounts per country: 2;
Number and names of countries connected to Egmont Secure Web: Number of
countries: 15;
Number and names of countries connected to Egmont Secure Web: [Empty];
Number and names of countries connected to Egmont Secure Web: Names of
countries: Antigua & Barbuda, Denmark, France, Georgia, Italy, Korea,
Latvia, Liechtenstein, Mauritius, Montenegro, Norway, Poland, Serbia,
South Africa, and United Kingdom;
Total number of Egmont Secure Web user accounts: 30.
Number of Egmont Secure Web user accounts per country: 3;
Number and names of countries connected to Egmont Secure Web: Number of
countries: 5;
Number and names of countries connected to Egmont Secure Web: [Empty];
Number and names of countries connected to Egmont Secure Web: Names of
countries: Bahamas, Chile, Indonesia, Netherlands, and Slovenia;
Total number of Egmont Secure Web user accounts: 15.
Number of Egmont Secure Web user accounts per country: 4;
Number and names of countries connected to Egmont Secure Web: Number of
countries: 2;
Number and names of countries connected to Egmont Secure Web: [Empty];
Number and names of countries connected to Egmont Secure Web: Names of
countries: Honduras and Spain;
Total number of Egmont Secure Web user accounts: 8.
Number of Egmont Secure Web user accounts per country: 5;
Number and names of countries connected to Egmont Secure Web: Number of
countries: 2;
Number and names of countries connected to Egmont Secure Web: [Empty];
Number and names of countries connected to Egmont Secure Web: Names of
countries: Argentina and Canada;
Total number of Egmont Secure Web user accounts: 10.
Number of Egmont Secure Web user accounts per country: 6;
Number and names of countries connected to Egmont Secure Web: Number of
countries: 2;
Number and names of countries connected to Egmont Secure Web: [Empty];
Number and names of countries connected to Egmont Secure Web: Names of
countries: Thailand and Ukraine;
Total number of Egmont Secure Web user accounts: 12.
Number of Egmont Secure Web user accounts per country: 12;
Number and names of countries connected to Egmont Secure Web: Number of
countries: 1;
Number and names of countries connected to Egmont Secure Web: [Empty];
Number and names of countries connected to Egmont Secure Web: Names of
countries: Australia;
Total number of Egmont Secure Web user accounts: 12.
Number of Egmont Secure Web user accounts per country: 18;
Number and names of countries connected to Egmont Secure Web: Number of
countries: 1;
Number and names of countries connected to Egmont Secure Web: [Empty];
Number and names of countries connected to Egmont Secure Web: Names of
countries: Belgium;
Total number of Egmont Secure Web user accounts: 18.
Number of Egmont Secure Web user accounts per country: 49;
Number and names of countries connected to Egmont Secure Web: Number of
countries: 1;
Number and names of countries connected to Egmont Secure Web: [Empty];
Number and names of countries connected to Egmont Secure Web: Names of
countries: United States;
Total number of Egmont Secure Web user accounts: 49.
Number of Egmont Secure Web user accounts per country: Total;
Number and names of countries connected to Egmont Secure Web: Number of
countries: 96;
Number and names of countries connected to Egmont Secure Web: [Empty];
Number and names of countries connected to Egmont Secure Web: Names of
countries: [Empty];
Total number of Egmont Secure Web user accounts: 221.
Source: FinCEN data.
Note: An Egmont Secure Web user account is issued to an authorized user
within an FIU that has been admitted into the Egmont Group. The request
for a user account is submitted to FinCEN by an official within the
foreign FIU. The account grants access to the Egmont Secure Web system
and enables "view only" use of the Web content, including pages and
documents posted for all FIUs. Also, the account includes the use of
secure e-mail-enabling exchange of sensitive documents between FIUs.
[End of table]
FinCEN is in the process of modernizing the system by acquiring
upgraded hardware and software. FinCEN officials estimated that the
upgrade will be completed by mid-2006 and cost approximately $631,000.
Further, the officials noted the following information:
* The U.S. government is the owner of the system and all other users
are stakeholders. In effect, FinCEN is providing a service to a group
(i.e., the Egmont Group)--of which, FinCEN itself is a member.
* The Egmont Secure Web meets or exceeds the requirements for
information systems that handle sensitive but unclassified information.
* The issuance of a digital certificate gives some assurance that users
have met security requirements, but the burden is on the respective FIU
to be responsible.[Footnote 26]
* As a further safeguard, the officials noted that the Egmont Secure
Web does not give foreign FIUs access to FinCEN's internal systems--for
example, the FIUs have no direct access to BSA data.
Management Information and Customer Feedback Are Important Tools for
Monitoring and Improving Performance:
Important tools for monitoring and improving performance of any
organization include implementing an effective management information
system and obtaining feedback from customers. Such tools are
particularly relevant for FinCEN, a networking organization that has a
significant role and responsibilities in combating international
financial crime.
Case Management: New Information System Being Developed to Better
Manage Requests for Assistance:
In response to our inquiry about what trends are reflected in data
regarding the timeliness of FinCEN's responses to foreign FIU requests
for assistance, FinCEN officials said that their management information
system does not lend itself easily to the identification of trends. The
officials noted, however, that FinCEN was developing a new case
management system to make statistical information more readily
available. According to FinCEN officials, full implementation of the
new system is scheduled for the last quarter of fiscal year 2008. The
officials told us that as of March 2006, no decision had been reached
on the new system's hardware or software platform. However, the
officials noted that in developing the new system, FinCEN is
coordinating with Treasury's Enterprise Architecture Office and also is
complying with applicable guidance from the Office of Management and
Budget.
Available case-management statistics show that FinCEN receives more
requests from foreign FIUs than it submits to these counterparts. As
table 3 indicates, the number of incoming requests to FinCEN has been
about twice the number of outgoing requests in recent fiscal years.
Table 3: Case-Management Statistics--Foreign FIU and FinCEN Requests
for Assistance:
Fiscal year: 2002;
Foreign FIU requests to FinCEN (incoming requests): 510;
FinCEN requests to foreign FIUs (outgoing requests): 341.
Fiscal year: 2003;
Foreign FIU requests to FinCEN (incoming requests): 529;
FinCEN requests to foreign FIUs (outgoing requests): 211.
Fiscal year: 2004;
Foreign FIU requests to FinCEN (incoming requests): 612;
FinCEN requests to foreign FIUs (outgoing requests): 292.
Fiscal year: 2005 (through 7/25/05);
Foreign FIU requests to FinCEN (incoming requests): 561;
FinCEN requests to foreign FIUs (outgoing requests): 238.
Source: FinCEN data.
Note: The data in table 3 quantify only those requests in which FinCEN
was a party that either received or submitted a request for
information. Thus, the data do not include, for example, requests
submitted by a foreign FIU to another foreign FIU.
[End of table]
In managing and processing incoming requests, FinCEN's policy is to
give priority to terrorism-related requests and other "expedite"
requests, such as those involving imminent law enforcement action or
other extenuating time-sensitive circumstances. FinCEN officials said
that responses are prepared to meet these deadlines. Otherwise, the
officials said that requests from foreign FIUs are to be handled on a
first-come, first-served basis. Generally, the officials noted that the
timeliness of FinCEN in responding to requests from foreign FIUs can
depend on a variety of factors, such as the volume of requests, the
types and amount of information being requested, the number of subjects
involved (e.g., persons and accounts), whether additional
clarifications of the requests are needed, and even the extent of time
zone differences between FinCEN and the foreign FIUs.
According to FinCEN data, the average time for responding to foreign
requests was 106 days in fiscal year 2002 and increased to 124 days in
fiscal year 2004. The FinCEN officials attributed this increase to
various reasons, including the growing number of FIUs and a loss of
contract staff who handled the majority of the requests from foreign
FIUs. More recently, FinCEN officials said that the average response
time had decreased to 63 days for fiscal year 2005 (through July 25,
2005). To further improve response times, the officials indicated that
FinCEN was (1) shifting additional employees to its Office of Global
Support (within the Analysis and Liaison Division), which is
responsible for processing requests from foreign FIUs, and (2) hiring
contract staff to specifically handle FIU requests for information.
Customer Satisfaction Survey of Financial Intelligence Units: Limited
Coverage and Low Response Rate:
For fiscal year 2005 (through July 25, 2005), a total of 561 requests
were made to FinCEN by 75 foreign customers, primarily FIUs. Sixteen
FIUs accounted for two-thirds of the total requests, as table 4 shows.
Table 4: Number and Names of Foreign Customer Entities That Requested
Assistance from FinCEN in Fiscal Year 2005 (as of July 25, 2005):
Foreign customers (75) that requested assistance from FInCEN: Number:
1;
Foreign customers (75) that requested assistance from FInCEN:
Jurisdiction and entity: Ukraine FIU;
Foreign requests to FinCEN for assistance: Number of requests: 44;
Foreign requests to FinCEN for assistance: Percentage of total foreign
requests: [Empty].
Foreign customers (75) that requested assistance from FInCEN: Number:
2;
Foreign customers (75) that requested assistance from FInCEN:
Jurisdiction and entity: Belgium FIU;
Foreign requests to FinCEN for assistance: Number of requests: 40;
Foreign requests to FinCEN for assistance: Percentage of total foreign
requests: [Empty].
Foreign customers (75) that requested assistance from FInCEN: Number:
3;
Foreign customers (75) that requested assistance from FInCEN:
Jurisdiction and entity: Isle of Man FIU;
Foreign requests to FinCEN for assistance: Number of requests: 39;
Foreign requests to FinCEN for assistance: Percentage of total foreign
requests: [Empty].
Foreign customers (75) that requested assistance from FInCEN: Number:
4;
Foreign customers (75) that requested assistance from FInCEN:
Jurisdiction and entity: Russia FIU;
Foreign requests to FinCEN for assistance: Number of requests: 28;
Foreign requests to FinCEN for assistance: Percentage of total foreign
requests: [Empty].
Foreign customers (75) that requested assistance from FInCEN: Number:
5;
Foreign customers (75) that requested assistance from FInCEN:
Jurisdiction and entity: Poland FIU;
Foreign requests to FinCEN for assistance: Number of requests: 27;
Foreign requests to FinCEN for assistance: Percentage of total foreign
requests: [Empty].
Foreign customers (75) that requested assistance from FInCEN: Number:
6;
Foreign customers (75) that requested assistance from FInCEN:
Jurisdiction and entity: Hungary FIU;
Foreign requests to FinCEN for assistance: Number of requests: 26;
Foreign requests to FinCEN for assistance: Percentage of total foreign
requests: [Empty].
Foreign customers (75) that requested assistance from FInCEN: Number:
7;
Foreign customers (75) that requested assistance from FInCEN:
Jurisdiction and entity: Bulgaria FIU;
Foreign requests to FinCEN for assistance: Number of requests: 23;
Foreign requests to FinCEN for assistance: Percentage of total foreign
requests: [Empty].
Foreign customers (75) that requested assistance from FInCEN: Number:
8;
Foreign customers (75) that requested assistance from FInCEN:
Jurisdiction and entity: Romania FIU;
Foreign requests to FinCEN for assistance: Number of requests: 19;
Foreign requests to FinCEN for assistance: Percentage of total foreign
requests: [Empty].
Foreign customers (75) that requested assistance from FInCEN: Number:
9;
Foreign customers (75) that requested assistance from FInCEN:
Jurisdiction and entity: Brazil FIU;
Foreign requests to FinCEN for assistance: Number of requests: 18;
Foreign requests to FinCEN for assistance: Percentage of total foreign
requests: [Empty].
Foreign customers (75) that requested assistance from FInCEN: Number:
10;
Foreign customers (75) that requested assistance from FInCEN:
Jurisdiction and entity: France FIU;
Foreign requests to FinCEN for assistance: Number of requests: 18;
Foreign requests to FinCEN for assistance: Percentage of total foreign
requests: [Empty].
Foreign customers (75) that requested assistance from FInCEN: Number:
11;
Foreign customers (75) that requested assistance from FInCEN:
Jurisdiction and entity: Ireland FIU;
Foreign requests to FinCEN for assistance: Number of requests: 18;
Foreign requests to FinCEN for assistance: Percentage of total foreign
requests: [Empty].
Foreign customers (75) that requested assistance from FInCEN: Number:
12;
Foreign customers (75) that requested assistance from FInCEN:
Jurisdiction and entity: Switzerland FIU;
Foreign requests to FinCEN for assistance: Number of requests: 16;
Foreign requests to FinCEN for assistance: Percentage of total foreign
requests: [Empty].
Foreign customers (75) that requested assistance from FInCEN: Number:
13;
Foreign customers (75) that requested assistance from FInCEN:
Jurisdiction and entity: Israel FIU;
Foreign requests to FinCEN for assistance: Number of requests: 15;
Foreign requests to FinCEN for assistance: Percentage of total foreign
requests: [Empty].
Foreign customers (75) that requested assistance from FInCEN: Number:
14;
Foreign customers (75) that requested assistance from FInCEN:
Jurisdiction and entity: Spain FIU;
Foreign requests to FinCEN for assistance: Number of requests: 15;
Foreign requests to FinCEN for assistance: Percentage of total foreign
requests: [Empty].
Foreign customers (75) that requested assistance from FInCEN: Number:
15;
Foreign customers (75) that requested assistance from FInCEN:
Jurisdiction and entity: Latvia FIU;
Foreign requests to FinCEN for assistance: Number of requests: 14;
Foreign requests to FinCEN for assistance: Percentage of total foreign
requests: [Empty].
Foreign customers (75) that requested assistance from FInCEN: Number:
16;
Foreign customers (75) that requested assistance from FInCEN:
Jurisdiction and entity: Croatia FIU;
Foreign requests to FinCEN for assistance: Number of requests: 13;
Foreign requests to FinCEN for assistance: Percentage of total foreign
requests: [Empty].
Foreign customers (75) that requested assistance from FInCEN: Number:
Subtotal (1 through 16);
Foreign customers (75) that requested assistance from FInCEN:
Jurisdiction and entity: [Empty];
Foreign requests to FinCEN for assistance: Number of requests: 373;
Foreign requests to FinCEN for assistance: Percentage of total foreign
requests: 66.
Foreign customers (75) that requested assistance from FInCEN: Number:
All 59 others (17 through 75)[A];
Foreign customers (75) that requested assistance from FInCEN:
Jurisdiction and entity: [Empty];
Foreign requests to FinCEN for assistance: Number of requests: 188;
Foreign requests to FinCEN for assistance: Percentage of total foreign
requests: 34.
Foreign customers (75) that requested assistance from FInCEN: Number:
Total;
Foreign customers (75) that requested assistance from FInCEN:
Jurisdiction and entity: [Empty];
Foreign requests to FinCEN for assistance: Number of requests: 561;
Foreign requests to FinCEN for assistance: Percentage of total foreign
requests: 100.
Source: FinCEN.
[A] The number of requests submitted by each of these 59 entities
(primarily FIUs) ranged from 1 to 9. Foreign customers other than FIUs
were relatively few and included, for example, Interpol.
[End of table]
One management priority of FinCEN is to periodically conduct customer
satisfaction surveys. The purpose of such surveys is to "identify
strengths and opportunities to improve services to external
clients."[Footnote 27] FinCEN contracted with an independent research
organization to conduct the most recent survey, which was designed and
implemented during August to October 2005.[Footnote 28] To obtain
feedback on FinCEN's support for investigative cases, one survey
instrument was used for both domestic law enforcement customers
(federal, state, and local) and international customers (FIUs). The
survey instrument was designed to obtain feedback on various aspects of
FinCEN's services provided during fiscal year 2005, such as the ease of
making requests, the timeliness of responses, and the value or
usefulness of information provided.
To facilitate distribution of the survey instrument, FinCEN provided
the contractor with a list of 325 customers, a total consisting of both
domestic and international customers. According to FinCEN, this total
represented all customers who had requested assistance from FinCEN in
fiscal year 2005 and for whom FinCEN had valid e-mail addresses. All
325 customers were invited via e-mail to participate in the Web-based
survey.
Of the 325 customers, 41 were FIUs. In answering our inquiry, FinCEN
officials were unable to explain why all FIUs that requested assistance
from FinCEN in fiscal year 2005 were not included in the survey.
Subsequently, from the 325 domestic and international customers invited
to participate in the survey, a total of 78 responses were collected,
giving an overall response rate of 24 percent. Although not broken out
separately in the contractor's final report, the FIU-related response
rate was much lower, with only 2 of the 41 FIUs responding.
As a result of the low response rate from the FIUs, insufficient
information was received to help FinCEN identify strengths and
opportunities to improve services to external clients. FinCEN did
receive feedback on the level of satisfaction for two FIUs, which is
helpful; however, the experiences of the two FIUs cannot be interpreted
as representing the experiences of other FIUs.
Generally, in conducting a survey, various efforts to promote the
highest possible response rate can be considered during both survey
development and survey administration. During survey development,
consideration can be given to individual and organization
characteristics that may affect the prospective respondents' level of
cooperation in completing the survey. For instance, the prospective
respondents may not want to be critical of the survey's sponsor.
Another factor that affects cooperation is the burden that completing
the survey instrument imposes on prospective respondents in terms of
their time and the level of effort required to understand the questions
and formulate responses. Pretesting the survey instrument is a way to
help evaluate whether the potentially adverse effects of these types of
factors have been minimized. Further, during survey administration,
follow-up efforts with prospective respondents can help to promote the
highest possible response rate. Such follow-up efforts can include e-
mail messages, letters, or telephone calls. FinCEN officials told us
they were unaware why the response rate from FIUs was low or whether
the survey included any follow-up efforts to obtain responses from
additional FIUs.
In perspective, periodic surveys of customers are not the only method
used by FinCEN to obtain performance feedback. For instance, in
responding to each request for assistance from FIUs, the practice of
FinCEN is to include an accompanying form that solicits feedback
regarding the timeliness of FinCEN's response and the usefulness of the
specific information provided. According to FinCEN officials, many of
the feedback forms either are not returned or are returned with
annotations indicating, for example, that the usefulness of the
information provided by FinCEN may not be known until some future date.
However, even if request-specific feedback is obtained, FinCEN
officials recognize the benefits of conducting more comprehensive
efforts, such as the periodic customer satisfaction surveys. This
recognition, as mentioned previously, is reflected in FinCEN's
Strategic Plan.
Conclusions:
FinCEN plays a critically important role in international efforts to
combat money laundering and terrorist financing. It has been a leader
in the adoption and implementation of international money laundering
countermeasures and supporting and advancing the Egmont Group's
principles and activities. A key part of FinCEN's international role
has been its efforts to respond to requests for information related to
possible international financial crime. Yet, FinCEN's method for
obtaining performance feedback data from global partners is flawed.
Relevant feedback data include whether FIUs find the information
provided by FinCEN to be substantive, timely, and useful--or how
information-sharing efforts could be improved. Without such data,
FinCEN is not in the best position to help the international community
combat financial crime.
In its Strategic Plan, FinCEN recognizes the importance of periodically
surveying its customers to "identify strengths and opportunities to
improve services." However, FinCEN's most-recent customer satisfaction
survey of its global partners had limited coverage--with less than one-
half of all FIUs being invited to participate. Also, the response rate
was very low, with no follow-up efforts directed specifically at
nonresponding FIUs. In the future, FinCEN's customer satisfaction
surveys of FIUs need to be more inclusive and reflect higher response
rates if the surveys are to serve as a useful management information
tool for monitoring and enhancing performance. The importance of
monitoring and improving performance by obtaining feedback from
customers is highlighted by the new operational role of FIUs in
combating terrorist financing--a role in which the sharing or
exchanging of information can be especially time critical.
Recommendation for Executive Action:
We recommend that the Director of FinCEN take appropriate steps in
developing and administering future customer satisfaction surveys to
help ensure more comprehensive coverage of and higher response rates
from FIUs. For example, such steps could include pretesting the survey
instrument and following-up with nonresponding FIUs.
Agency Comments and Our Evaluation:
We provided a draft of this report for comment to the departments of
the Treasury, State, Homeland Security, and Justice, and the Federal
Reserve Board. We received written responses from each agency.
The Department of the Treasury responded that it supports our
recommendation that the Director of FinCEN take appropriate steps in
developing and administering future customer satisfaction surveys to
help ensure more comprehensive coverage of and higher response rates
from FIUs. The Department of the Treasury commented that it is
committed to ensuring that customer surveys provide reliable
performance feedback.
The Department of State commented that our October 2005 report--
Terrorist Financing: Better Strategic Planning Needed to Coordinate
U.S. Efforts to Deliver Counter-Terrorism Financing Training and
Technical Assistance Abroad (GAO-06-19)--was not relevant for
discussion in this report. In our view, however, the October 2005
report provides relevant perspectives on interagency coordination and
strategic planning, so we retained a brief discussion of it in this
report. The Department of State also provided a technical comment
regarding section 311 of the USA PATRIOT Act, which we incorporated
where appropriate.
The Department of Homeland Security and the Federal Reserve Board
responded that they had no comments on this report. The Department of
Justice provided technical comments only, which we incorporated in this
report where appropriate.
As arranged with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
after the date of this report. At that time, we will send copies of
this report to interested congressional committees and subcommittees.
We will also make copies available to others on request. In addition,
this report will be available at no charge on GAO's Web site at
[Hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report or wish to
discuss the matter further, please contact me at (202) 512-8777 or
stanar@gao.gov. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
report. Other key contributors to this report were Danny Burton,
Frederick Lyles, Natasha Ewing, Thomas Lombardi, and Evan Gilman.
Sincerely yours,
Signed by:
Richard M. Stana:
Director, Homeland Security and Justice Issues:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
Objectives:
In response to a request from the Chairman, House Committee on the
Judiciary, we reviewed the global or international-related efforts of
the Department of the Treasury and the Financial Crimes Enforcement
Network (FinCEN) to combat money laundering and terrorist financing.
Section 330 of the USA PATRIOT Act expresses the sense of the Congress
that the President should direct the Secretary of State, the Attorney
General, or the Secretary of the Treasury, in consultation with the
Board of Governors of the Federal Reserve, to seek to enter into
negotiations with foreign jurisdictions that may be utilized by a
foreign terrorist organization in order to further cooperative efforts
to ensure that foreign banks and other financial institutions maintain
adequate records of transactions and account information relating to
any foreign terrorist organization or member thereof.[Footnote 29] The
negotiators should also seek to establish a mechanism whereby those
records would be made available to U.S. law enforcement officials and
domestic financial institution supervisors, when appropriate.
Section 361 of the USA PATRIOT Act established FinCEN as a statutory
bureau in the Treasury Department and listed FinCEN's various duties
and powers, which include coordinating with foreign counterparts--that
is, financial intelligence units (FIUs) in other countries.[Footnote
30] These units are specialized governmental agencies created to combat
money laundering, terrorist financing, and other financial crimes. Each
FIU is the respective nation's central agency responsible for obtaining
information (e.g., suspicious transaction reports) from financial
institutions, processing or analyzing the information, and then
disseminating it to appropriate authorities.
Specifically, our review focused on the following questions regarding
efforts under sections 330 and 361 of the USA PATRIOT Act to combat
money laundering and terrorist financing:
* Under section 330 of the USA PATRIOT Act, how has the Department of
the Treasury interacted or negotiated with foreign jurisdictions to
promote cooperative efforts to combat money laundering and terrorist
financing?
* Under section 361, how has FinCEN contributed to establishing FIUs in
foreign countries and enhancing the capabilities of these units to
combat money laundering and terrorist financing?
* What actions is FinCEN taking to maximize its performance as a global
partner in combating money laundering and terrorist financing?
Scope and Methodology:
Initially, in addressing the principal questions, we reviewed sections
330 and 361 of the USA PATRIOT Act and relevant legislative histories.
Also, we reviewed information available on the Web sites of federal
entities, including the departments of the Treasury (and FinCEN),
Justice, State, and Homeland Security. Similarly, we reviewed
information available on the Web sites of relevant multilateral or
international bodies, such as (1) the Financial Action Task Force on
Money Laundering (FATF), an intergovernmental entity whose purpose is
to establish international standards and to develop and promote
policies for combating money laundering and terrorist
financing;[Footnote 31] (2) the various FATF-style regional bodies; (3)
the International Monetary Fund; (4) the World Bank; and (5) the Egmont
Group of FIUs.[Footnote 32] To obtain additional background and
overview perspectives, we conducted a literature search to identify
relevant reports, studies, articles, and other documents--including
congressional hearing testimony--regarding U.S. and multilateral
efforts to combat money laundering and terrorist financing.
Treasury Department Efforts to Accomplish Goals Articulated under
Section 330 of the USA PATRIOT Act:
Regarding section 330 of the USA PATRIOT Act, to determine how the
Department of the Treasury has interacted or negotiated with foreign
jurisdictions to promote cooperative efforts to combat money laundering
and terrorist financing, we interviewed responsible officials at and
reviewed relevant documentation obtained from the departments of the
Treasury, Justice, and State and the Federal Reserve Board. Also,
because our preliminary inquiries indicated that efforts to accomplish
the goals articulated under section 330 largely involve interactions
with multilateral organizations--particularly FATF--we focused
especially on the efforts of Treasury's Office of Terrorist Finance and
Financial Crime, which leads the U.S. delegation to FATF and is the
department's policy and enforcement entity regarding money laundering
and terrorist financing.
Further, because section 330 does not specify any consequences or
penalties for noncooperative parties or countries, we determined the
availability of incentive or pressure mechanisms that could be used in
conjunction with negotiations. In this regard, on the basis of
Treasury's response to our inquiry, we identified federal actions taken
under USA PATRIOT Act section 311, which authorizes the Secretary of
the Treasury--in consultation with the Secretary of State and the
Attorney General--to find that reasonable grounds exist for concluding
that a foreign jurisdiction, a financial institution, a class of
transactions, or a type of account is of "primary money laundering
concern."[Footnote 33] If such a finding is made, U.S. financial
institutions could be required to take certain "special measures"
against the applicable jurisdictions, institutions, accounts, or
transactions. The special measures can range from enhanced record
keeping or reporting obligations to a requirement to terminate
correspondent banking relationships with the designated entity.
FinCEN Contributions to Establishing FIUs in Foreign Countries and
Enhancing Their Capabilities:
In addressing this topic, we first obtained data on the annual growth
in the number of FIUs over the past decade--from 1995, when the Egmont
Group of FIUs was formed, to the present. Also, we obtained overview
information on the history, purposes, and functioning of FIUs. For
instance, the overview information--which was available on the Egmont
Group's Web site (www.egmontgroup.org) or was otherwise published--
included the following:
* Statement of Purpose of the Egmont Group of Financial Intelligence
Units,
* Principles for Information Exchange Between Financial Intelligence
Units for Money Laundering and Terrorism Financing Cases,
* Best Practices for the Exchange of Information between Financial
Intelligence Units, and:
* International Monetary Fund and World Bank, Financial Intelligence
Units--An Overview, 2004.
* In further reference to establishing FIUs and enhancing their
capabilities, we obtained information on the efforts (e.g., training
and technical support) of FinCEN and other federal contributors, such
as Treasury's Office of Technical Assistance and the State Department.
In so doing, we interviewed responsible officials at and reviewed
relevant documentation obtained from FinCEN, Treasury, and State. The
federal officials we contacted included FinCEN's Deputy Director, who
chairs the Egmont Committee, which functions as the consultation and
coordination mechanism for FIU heads and the Egmont Group's five
working groups (information technology, legal, operational, training,
and outreach).[Footnote 34] The documentation we reviewed included
FinCEN's annual reports and strategic plans as well as the
international narcotics control strategy reports released annually by
the State Department's Bureau for International Narcotics and Law
Enforcement Affairs--reports that present information on FinCEN's and
other federal agencies' efforts to create and improve FIUs. In
identifying these federal efforts, we did not attempt to disaggregate
or separately quantify contributions attributable to the respective
federal agency. Rather, we made inquiries regarding any potential
issues involving interagency coordination of federal efforts.
* Further regarding the capability of FIUs, we identified and reviewed
available studies or reports. In particular, we reviewed a report
prepared by the International Monetary Fund (IMF) and the World Bank
that presented comparative or multicountry results based on mutual
evaluations of nations' compliance with the FATF recommendations. The
study--Twelve-Month Pilot Program of Anti-Money-Laundering and
Combating the Financing of Terrorism (AML/CFT) Assessments-Joint Report
on the Review of the Pilot Program, March 10, 2004--summarized the
results of the mutual evaluations of 41 jurisdictions, conducted during
the 12-month period that ended in October 2003. The assessments used a
common methodology adopted by FATF and endorsed by the Executive Boards
of IMF and the World Bank.[Footnote 35]
* To obtain more current transnational perspectives on the capability
of FIUs, we attended (as an observer) the most recent annual plenary
meeting (June 30 to July 1, 2005) of the Egmont Group. At the plenary
meeting, held in Washington, D.C., a summary of FIU-related assessment
findings was presented. The information was derived from the results of
mutual evaluations or assessments (of 29 countries) conducted from 2003
to 2005 using the common methodology endorsed by FATF, IMF, and the
World Bank.
Actions FinCEN Is Taking to Maximize Its Performance as a Global
Partner in Combating Money Laundering and Terrorist Financing:
We inquired about FinCEN's efforts to update or modernize the Egmont
Secure Web, which is the Internet-based communications system developed
and maintained by FinCEN and used by FIUs worldwide to share or
exchange information. Generally, the Egmont Secure Web is considered to
be of paramount importance to the operations of FinCEN and foreign
FIUs. For instance, the Egmont Group's guidelines--Best Practices for
the Exchange of Information between Financial Intelligence Units--state
that, where appropriate, FIUs should use the Egmont Secure Web, which
permits secure online information sharing among members. FinCEN is in
the process of modernizing the system's 1997 architecture by acquiring
upgraded hardware and software. A large majority (96) of the Egmont
Group's 101 members are connected to the Egmont Secure Web.
Also, we reviewed annual statistical information on international-
related requests for assistance in developing or investigating cases.
Specifically, for fiscal years 2002 to 2005, we obtained statistics on
requests for assistance submitted by foreign FIUs to FinCEN. To the
extent permitted by available data, we analyzed the statistical
information on incoming requests in reference to the subject matter of
the request, the country of submission, and the timeliness of FinCEN's
response to the submitting FIU. We did not analyze the quality of
FinCEN's responses to the incoming requests for assistance. However, we
reviewed the results of the most recent customer feedback survey
conducted by FinCEN. Also, we inquired about FinCEN's efforts to better
monitor or improve timeliness performance by developing a new case
management system and assigning additional employees to the Office of
Global Support, which is responsible for processing requests from
foreign FIUs.
Further, we inquired about FinCEN's efforts to enhance its analytical
capabilities to handle more complex cases and support the nation's
focus on detecting and preventing terrorist financing. For example, we
contacted the Federal Bureau of Investigation's (FBI) Terrorist
Financing Operations Section and the Foreign Terrorist Tracking Task
Force.
Data Reliability:
We conducted our work from June 2005 to March 2006 in accordance with
generally accepted government auditing standards. Regarding the
statistical information we obtained from FinCEN--i.e., information
concerning requests for assistance submitted by foreign FIUs to FinCEN-
-we discussed the sources of the data with FinCEN officials and worked
with them to resolve discrepancies we identified with the data they
provided. As resolved and presented in this report, we determined that
these data were sufficiently reliable for the purposes of this review.
[End of section]
Appendix II: Financial Action Task Force and Related Regional Bodies:
This appendix presents summary information regarding the purposes and
functioning of the Financial Action Task Force on Money Laundering and
the various FATF-style regional bodies--international entities whose
mission focuses on combating money laundering and terrorist financing.
The summary information is derived largely from FATF's Web site
(www.fatf-gafi.org), which provides links to the regional bodies. Also,
we discussed the information with Treasury Department officials.
The Financial Action Task Force and Related Regional Bodies Encompass
Member Jurisdictions around the Globe:
Initially, FATF was created in 1989 by the G7 nations in response to
growing concerns about money laundering.[Footnote 36] However, after
the events of September 11, FATF's mission was expanded to combat the
financing of terrorism. The mission of FATF consists of three principal
activities--(1) setting standards for combating money laundering and
terrorist financing, (2) evaluating the progress of nations in
implementing measures to meet the standards, and (3) identifying and
studying methods and trends regarding money laundering and terrorist
financing. In fulfilling this mission, FATF is assisted by various FATF-
style regional bodies that have been established since 1992. As table 5
indicates, FATF and the related regional bodies encompass member
jurisdictions around the globe.
Table 5: Establishment Dates and Membership of FATF and FATF-Style
Regional Bodies:
FATF and FATF-style regional bodies: FATF;
Year established: 1989;
Number and names of member jurisdictions (as of July 2005): Number: 33;
Number and names of member jurisdictions (as of July 2005): Names:
Argentina, Australia, Austria, Belgium, Brazil, Canada, Denmark,
Finland, France, Germany, Greece, Hong Kong, China, Iceland, Ireland,
Italy, Japan, Luxembourg, Mexico, the Kingdom of the Netherlands, New
Zealand, Norway, Portugal, the Russian Federation, Singapore, South
Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom, United
States, the European Commission,[A] and the Gulf Cooperation
Council[B].
FATF and FATF-style regional bodies: Caribbean Financial Action Task
Force;
Year established: 1992;
Number and names of member jurisdictions (as of July 2005): Number: 30;
Number and names of member jurisdictions (as of July 2005): Names:
Antigua and Barbuda, Anguilla, Aruba, The Bahamas, Barbados, Belize,
Bermuda, the British Virgin Islands, the Cayman Islands, Costa Rica,
Dominica, Dominican Republic, El Salvador, Grenada, Guatemala, Guyana,
Republic of Haiti, Honduras, Jamaica, Montserrat, the Netherlands
Antilles, Nicaragua, Panama, St. Kitts and Nevis, St. Lucia, St.
Vincent and the Grenadines, Suriname, the Turks and Caicos Islands,
Trinidad and Tobago, and Venezuela.
FATF and FATF-style regional bodies: Asia/Pacific Group on Money
Laundering;
Year established: 1997;
Number and names of member jurisdictions (as of July 2005): Number: 29;
Number and names of member jurisdictions (as of July 2005): Names:
Australia, Bangladesh, Brunei Darussalam, Cambodia, Chinese Taipei,
Cook Islands, Fiji Islands, Hong Kong (China), India, Indonesia, Japan,
Republic of Korea, Macau (China), Malaysia, the Marshall Islands,
Mongolia, Nepal, New Zealand, Niue, Pakistan, Palau, the Philippines,
Samoa, Singapore, Sri Lanka, Thailand, Tonga, the United States,[C] and
Vanuatu.
FATF and FATF-style regional bodies: Select Committee of Experts on the
Evaluation of Anti-Money Laundering Measures (MONEYVAL);
Year established: 1997;
Number and names of member jurisdictions (as of July 2005): Number:
27[D];
Number and names of member jurisdictions (as of July 2005): Names:
Albania, Andorra, Armenia, Azerbaijan, Bosnia and Herzegovina,
Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Georgia, Hungary,
Latvia, Liechtenstein, Lithuania, Macedonia, Malta, Moldova, Monaco,
Poland, Romania, the Russian Federation, San Marino, Serbia and
Montenegro, Slovakia, Slovenia, and Ukraine.
FATF and FATF-style regional bodies: Eastern and South Africa Anti-
Money Laundering Group;
Year established: 1999;
Number and names of member jurisdictions (as of July 2005): Number: 12;
Number and names of member jurisdictions (as of July 2005): Names:
Botswana, Kenya, Malawi, Mauritius, Mozambique, Namibia, Swaziland,
Seychelles, Tanzania, Uganda, Zambia, and Zimbabwe.
FATF and FATF-style regional bodies: GAFISUD (South America);
Year established: 2000;
Number and names of member jurisdictions (as of July 2005): Number: 9;
Number and names of member jurisdictions (as of July 2005): Names:
Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru,
and Uruguay.
FATF and FATF-style regional bodies: Eurasia FATF;
Year established: 2004;
Number and names of member jurisdictions (as of July 2005): Number: 6;
Number and names of member jurisdictions (as of July 2005): Names:
Belarus, China, Kazakhstan, Kyrgyz Republic, the Russian Federation,
and Tajikistan.
FATF and FATF-style regional bodies: Middle East and North Africa FATF;
Year established: 2004;
Number and names of member jurisdictions (as of July 2005): Number: 14;
Number and names of member jurisdictions (as of July 2005): Names:
Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar,
Saudi Arabia, Syria, Tunisia, the United Arab Emirates, and Yemen.
Source: GAO, based on review of Web sites of FATF and regional bodies
and verification by Treasury Department officials.
[A] The European Commission is the executive arm of the European Union
and is responsible for implementing the decisions of the European
Parliament and the Council of the European Union.
[B] The Gulf Cooperation Council--officially known as the Cooperation
Council for the Arab States of the Gulf--was established in 1981 to
promote stability and economic cooperation among the Persian Gulf
nations of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United
Arab Emirates. Although the Gulf Cooperation Council is a full member
of FATF, the individual member countries are not.
[C] The United States is a founding member of the Asia/Pacific Group on
Money Laundering.
[D] In addition to its 27 permanent members, MONEYVAL has 2 temporary
members designated on a 2-year basis by the FATF presidency. For the
period 2005-2006, the 2 temporary members are France and the
Netherlands.
[End of table]
FATF Recommendations Provide a Set of Countermeasures against Money
Laundering and Terrorist Financing:
FATF recommendations are designed to ensure that each nation has in
place a set of countermeasures against money laundering and terrorist
financing. In 1990, FATF issued its "Forty Recommendations on Money
Laundering." In October 2001, the month following the terrorist attacks
in the United States, FATF issued "Eight Special Recommendations on
Terrorist Financing." More recently, in October 2004, FATF published a
ninth special recommendation on terrorist financing to target cross-
border movements of currency and monetary instruments. Table 6
summarizes the "Forty Recommendations on Money Laundering" and the
"Nine Special Recommendations on Terrorist Financing."
Table 6: FATF Recommendations on Money Laundering and Terrorist
Financing:
Forty Recommendations on Money Laundering: Number: 1;
Forty Recommendations on Money Laundering: Recommendation: Scope of the
criminal offense of money laundering: Countries should criminalize
money laundering on the basis of United Nations Convention against
Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988
(the Vienna Convention) and United Nations Convention against
Transnational Organized Crime, 2000 (the Palermo Convention). Countries
should apply the crime of money laundering to all serious offenses,
with a view to including the widest range of predicate offenses.
Predicate offenses may be described by reference to all offenses, or to
a threshold linked either to a category of serious offenses or to the
penalty of imprisonment applicable to the predicate offense (threshold
approach), or to a list of predicate offenses, or a combination of
these approaches.
Forty Recommendations on Money Laundering: Number: 2;
Forty Recommendations on Money Laundering: Recommendation: Criminal
intent/ legal persons: Countries should ensure that (a) The intent and
knowledge required to prove the offense of money laundering is
consistent with the standards set forth in the Vienna and Palermo
Conventions, including the concept that such mental state may be
inferred from objective factual circumstances. (b) Criminal liability
and, where that is not possible, civil or administrative liability
should apply to legal persons. This should not preclude parallel
criminal, civil, or administrative proceedings with respect to legal
persons in countries in which such forms of liability are available.
Legal persons should be subject to effective, proportionate, and
dissuasive sanctions. Such measures should be without prejudice to the
criminal liability of individuals.
Forty Recommendations on Money Laundering: Number: 3;
Forty Recommendations on Money Laundering: Recommendation: Provisional
measures and confiscation: Countries should adopt measures similar to
those set forth in the Vienna and Palermo Conventions, including
legislative measures, to enable their respective competent authorities
to confiscate property laundered, proceeds from money laundering or
predicate offenses, instrumentalities used in or intended for use in
the commission of these offense, or property of corresponding value,
without prejudicing the rights of bona fide third parties.
Forty Recommendations on Money Laundering: Number: 4;
Forty Recommendations on Money Laundering: Recommendation: Financial
secrecy: Countries should ensure that financial institution secrecy
laws do not inhibit implementation of FATF recommendations.
Forty Recommendations on Money Laundering: Number: 5;
Forty Recommendations on Money Laundering: Recommendation: Customer due
diligence: Financial institutions should not keep anonymous accounts or
accounts in obviously fictitious names. Financial institutions should
undertake customer due diligence measures, including identifying and
verifying the identity of their customers.
Forty Recommendations on Money Laundering: Number: 6;
Forty Recommendations on Money Laundering: Recommendation: Politically
exposed persons: Financial institutions should, in relation to
politically exposed persons, in addition to performing normal due
diligence measures (a) have appropriate risk management systems to
determine whether the customer is a politically exposed person, (b)
obtain senior management approval for establishing business
relationships with such customers, (c) take reasonable measures to
establish the source of wealth and source of funds, and (d) conduct
enhanced ongoing monitoring of the business relationship. Examples of
politically exposed persons include individuals who are heads of state
or of government; senior politicians; senior government, judicial, or
military officials; senior executives of state-owned corporations; and
important political party officials.
Forty Recommendations on Money Laundering: Number: 7;
Forty Recommendations on Money Laundering: Recommendation: Cross-border
correspondence: Financial institutions should, in relation to cross-
border correspondent banking and other similar relationships, in
addition to performing normal due diligence measures (a) gather
sufficient information about a respondent institution to understand
fully the nature of the respondent's business and to determine from
publicly available information the reputation of the institution and
the quality of supervision, including whether it has been subject to a
money laundering or terrorist financing investigation or regulatory
action; (b) assess the respondent institution's anti-money-laundering
and terrorist financing controls; (c) obtain approval from senior
management before establishing new correspondent relationships; (d)
document the respective responsibilities of each institution;
and (e) with respect to payable-through accounts, be satisfied that the
respondent bank has verified the identity of and performed ongoing due
diligence on the customers having direct access to accounts of the
correspondent and that it is able to provide relevant customer
identification data upon request to the correspondent bank.
Forty Recommendations on Money Laundering: Number: 8;
Forty Recommendations on Money Laundering: Recommendation: Non-face-to-
face business relationships or transactions: Financial institutions
should pay special attention to any money laundering threats that may
arise from new or developing technologies that might favor anonymity,
and take measures, if needed, to prevent their use in money laundering
schemes. In particular, financial institutions should have policies and
procedures in place to address any specific risks associated with non-
face-to-face business relationships or transactions.
Forty Recommendations on Money Laundering: Number: 9;
Forty Recommendations on Money Laundering: Recommendation:
Intermediaries/ introduced business: Countries may permit financial
institutions to rely on intermediaries or other third parties to
perform elements…of the customer due diligence process or to introduce
business, provided that…[specified] criteria…are met. Where such
reliance is permitted, the ultimate responsibility for customer
identification and verification remains with the financial institution
relying on the third party.
Forty Recommendations on Money Laundering: Number: 10;
Forty Recommendations on Money Laundering: Recommendation: Record
keeping: Financial institutions should maintain, for at least 5 years,
all necessary records on transactions, both domestic or international,
to enable them to comply swiftly with information requests from the
competent authorities. Such records must be sufficient to permit
reconstruction of individual transactions (including the amounts and
types of currency involved if any) so as to provide, if necessary,
evidence for prosecution of criminal activity. Financial institutions
should keep records on the identification data obtained through the
customer due diligence process (e.g., copies or records of official
identification documents like passports, identity cards, driving
licenses or similar documents), account files and business
correspondence for at least 5 years after the business relationship is
ended. The identification data and transaction records should be
available to domestic competent authorities upon appropriate authority.
Forty Recommendations on Money Laundering: Number: 11;
Forty Recommendations on Money Laundering: Recommendation: Attention to
complex, unusual transactions: Financial institutions should pay
special attention to all complex, unusual large transactions, and all
unusual patterns of transactions, which have no apparent economic or
visible lawful purpose. The background and purpose of such transactions
should, as far as possible, be examined, the findings established in
writing, and be available to help competent authorities and auditors.
Forty Recommendations on Money Laundering: Number: 12;
Forty Recommendations on Money Laundering: Recommendation: Customer due
diligence and record keeping for designated nonfinancial businesses and
professions: The customer due diligence and recordkeeping requirements
set out in Recommendations 5, 6, and 8 to 11 apply to designated non-
financial businesses and professions in…[certain] situations. [Note:
These entities include casinos; real estate agents; dealers in precious
metals and stones; lawyers, notaries, other independent legal
professionals and accountants; and trust and company service
providers.].
Forty Recommendations on Money Laundering: Number: 13;
Forty Recommendations on Money Laundering: Recommendation: Suspicious
transaction reporting: If a financial institution suspects or has
reasonable grounds to suspect that funds are the proceeds of a criminal
activity, or are related to terrorist financing, it should be required,
directly by law or regulation, to report promptly its suspicions to the
financial intelligence unit.
Forty Recommendations on Money Laundering: Number: 14;
Forty Recommendations on Money Laundering: Recommendation: Protection
for suspicious transaction reporting/tipping off: Financial
institutions, their directors, officers, and employees should be (a)
protected by legal provisions from criminal and civil liability for
breach of any restriction on disclosure of information imposed by
contract or by any legislative, regulatory, or administrative
provision, if they report their suspicion in good faith to the
financial intelligence unit, even if they did not know precisely what
the underlying criminal activity was, and regardless of whether illegal
activity actually occurred and (b) prohibited by law from disclosing
the fact that a suspicious transaction report or related information is
being reported to the financial intelligence unit.
Forty Recommendations on Money Laundering: Number: 15;
Forty Recommendations on Money Laundering: Recommendation: Internal
policies and controls/screening, training, audit: Financial
institutions should develop programs against money laundering and
terrorist financing. These programs should include (a) the development
of internal policies, procedures, and controls, including appropriate
compliance management arrangements, and adequate screening procedures
to ensure high standards when hiring employees; (b) an ongoing employee
training program; and (c) an audit function to test the system.
Forty Recommendations on Money Laundering: Number: 16;
Forty Recommendations on Money Laundering: Recommendation: Suspicious
transaction reporting and internal controls for designated non-
financial businesses and professions: The requirements set out in
Recommendations 13 to 15 and 21 apply to all designated non-financial
businesses and professions, subject to… certain] qualifications.
Forty Recommendations on Money Laundering: Number: 17;
Forty Recommendations on Money Laundering: Recommendation: Sanctions:
Countries should ensure that effective, proportionate, and dissuasive
sanctions, whether criminal, civil, or administrative, are available to
deal with natural or legal persons covered by these Recommendations
that fail to comply with anti-money laundering or terrorist financing
requirements.
Forty Recommendations on Money Laundering: Number: 18;
Forty Recommendations on Money Laundering: Recommendation: Shell banks:
Countries should not approve the establishment or accept the continued
operation of shell banks. Financial institutions should refuse to enter
into, or continue, a correspondent banking relationship with shell
banks. Financial institutions should also guard against establishing
relations with respondent foreign financial institutions that permit
their accounts to be used by shell banks.
Forty Recommendations on Money Laundering: Number: 19;
Forty Recommendations on Money Laundering: Recommendation: Cross-border
transportation of currency: Countries should consider the feasibility
and utility of a system where banks and other financial institutions
and intermediaries would report all domestic and international currency
transactions above a fixed amount, to a national central agency with a
computerized data base, available to competent authorities for use in
money laundering or terrorist financing cases, subject to strict
safeguards to ensure proper use of the information.
Forty Recommendations on Money Laundering: Number: 20;
Forty Recommendations on Money Laundering: Recommendation: Application
to other businesses and professions: Countries should consider applying
the FATF Recommendations to businesses and professions, other than
designated non-financial businesses and professions, that pose a money
laundering or terrorist financing risk. Countries should further
encourage the development of modern and secure techniques of money
management that are less vulnerable to money laundering.
Forty Recommendations on Money Laundering: Number: 21;
Forty Recommendations on Money Laundering: Recommendation: Attention to
transactions with problem countries: Financial institutions should give
special attention to business relationships and transactions with
persons, including companies and financial institutions, from countries
which do not or insufficiently apply the FATF Recommendations. Whenever
these transactions have no apparent economic or visible lawful purpose,
their background and purpose should, as far as possible, be examined,
the findings established in writing, and be available to help competent
authorities. Where such country continues not to apply or
insufficiently applies the FATF Recommendations, countries should be
able to apply appropriate counter-measures.
Forty Recommendations on Money Laundering: Number: 22;
Forty Recommendations on Money Laundering: Recommendation: Application
to branches and subsidiaries: Financial institutions should ensure that
the principles applicable to financial institutions, which are
mentioned above, are also applied to branches and majority-owned
subsidiaries located abroad, especially in countries which do not or
insufficiently apply the FATF Recommendations, to the extent that local
applicable laws and regulations permit. When local applicable laws and
regulations prohibit this implementation, competent authorities in the
country of the parent institution should be informed by the financial
institutions that they cannot apply the FATF Recommendations.
Forty Recommendations on Money Laundering: Number: 23;
Forty Recommendations on Money Laundering: Recommendation: Supervision/
regulation; prevention of criminals from positions: Countries should
ensure that financial institutions are subject to adequate regulation
and supervision and are effectively implementing the FATF
Recommendations. Competent authorities should take the necessary legal
or regulatory measure to prevent criminals or their associates from
holding or being the beneficial owner of a significant or controlling
interest or holding a management function in a financial institution.
Forty Recommendations on Money Laundering: Number: 24;
Forty Recommendations on Money Laundering: Recommendation: Supervision/
regulation for designated non-financial businesses and professions:
Designated non-financial businesses and professions should be subject
to regulatory and supervisory measures … Casinos should be subject to a
comprehensive regulatory and supervisory regime that ensures that they
have effectively implemented the necessary anti-money laundering and
terrorist-financing measures.…Countries should ensure that the other
categories of designated non-financial businesses and professions are
subject to effective systems for monitoring and ensuring their
compliance with requirements to combat money laundering and terrorist
financing.
Forty Recommendations on Money Laundering: Number: 25;
Forty Recommendations on Money Laundering: Recommendation: Guidelines
for detecting suspicious transactions/providing feedback: The competent
authorities should establish guidelines and provide feedback which will
assist financial institutions and designated non-financial businesses
and professions in applying national measures to combat money
laundering and terrorist financing, and in particular, in detecting and
reporting suspicious transactions.
Forty Recommendations on Money Laundering: Number: 26;
Forty Recommendations on Money Laundering: Recommendation: Financial
intelligence unit establishment/powers: Countries should establish a
financial intelligence unit that serves as a national center for the
receiving (and, as permitted, requesting), analysis, and dissemination
of suspicious transaction reports and other information regarding
potential money laundering or terrorist financing. The financial
intelligence unit should have access, directly or indirectly, on a
timely basis to the financial, administrative, and law enforcement
information that it requires to properly undertake its functions,
including the analysis of suspicious transaction reports.
Forty Recommendations on Money Laundering: Number: 27;
Forty Recommendations on Money Laundering: Recommendation: Designated
law enforcement resources; investigative techniques: Countries should
ensure that designated law enforcement authorities have responsibility
for money laundering and terrorist financing investigations. Countries
are encouraged to support and develop, as far as possible, special
investigative techniques suitable for the investigation of money
laundering, such as controlled delivery, undercover operations, and
other relevant techniques. Countries are also encouraged to use other
effective mechanisms such as the use of permanent or temporary groups
specialized in asset investigation, and cooperative investigations with
appropriate competent authorities in other countries.
Forty Recommendations on Money Laundering: Number: 28;
Forty Recommendations on Money Laundering: Recommendation: Document
production, search and seizure powers: When conducting investigations
of money laundering and underlying predicate offenses, competent
authorities should be able to obtain documents and information for use
in those investigations, and in prosecutions and related actions. This
should include powers to use compulsory measures for the production of
records held by financial institutions and other persons, for the
search of persons and premises, and for the seizure and obtaining of
evidence.
Forty Recommendations on Money Laundering: Number: 29;
Forty Recommendations on Money Laundering: Recommendation: Supervisory
powers to monitor: Supervisors should have adequate powers to monitor
and ensure compliance by financial institutions with requirements to
combat money laundering and terrorist financing, including the
authority to conduct inspections. They should be authorized to compel
production of any information from financial institutions that is
relevant to monitoring such compliance, and to impose adequate
administrative sanctions for failure to comply with such requirements.
"Supervisors" refers to designated competent authorities responsible
for ensuring compliance by financial institutions with requirements to
combat money laundering and terrorist financing.
Forty Recommendations on Money Laundering: Number: 30;
Forty Recommendations on Money Laundering: Recommendation: Adequate
resources for competent authorities: Countries should provide their
competent authorities involved in combating money laundering and
terrorist financing with adequate financial, human, and technical
resources. Countries should have in place processes to ensure that the
staff of those authorities are of high integrity.
Forty Recommendations on Money Laundering: Number: 31;
Forty Recommendations on Money Laundering: Recommendation: Domestic
cooperation: Countries should ensure that policymakers, the financial
intelligence, law enforcement and supervisors have effective mechanisms
in place which enable them to cooperate, and where appropriate
coordinate domestically with each other concerning the development and
implementation of policies and activities to combat money laundering
and terrorist financing.
Forty Recommendations on Money Laundering: Number: 32;
Forty Recommendations on Money Laundering: Recommendation: Maintenance
of statistics: Countries should ensure that their competent authorities
can review the effectiveness of their systems to combat money
laundering and terrorist financing systems by maintaining comprehensive
statistics on matters relevant to the effectiveness and efficiency of
such systems. This should include statistics on the suspicious
transaction reports received and disseminated; on money laundering and
terrorist financing investigations, prosecutions, and convictions; on
property frozen, seized, and confiscated; and on mutual legal
assistance or other international requests for cooperation.
Forty Recommendations on Money Laundering: Number: 33;
Forty Recommendations on Money Laundering: Recommendation: Use of legal
persons; beneficial ownership: Countries should take measures to
prevent the unlawful use of legal persons by money launderers.
Countries should ensure that there is adequate, accurate, and timely
information on the beneficial ownership and control of legal persons
that can be obtained or accessed in a timely fashion by competent
authorities. In particular, countries that have legal persons that are
able to issue bearer shares should take appropriate measures to ensure
that they are not misused for money laundering and be able to
demonstrate the adequacy of those measures. Countries could consider
measures to facilitate access to beneficial ownership and control
information to financial institutions undertaking the requirements set
out in Recommendation 5.
Forty Recommendations on Money Laundering: Number: 34;
Forty Recommendations on Money Laundering: Recommendation: Transparency
for legal arrangements/trusts: Countries should take measures to
prevent the unlawful use of legal arrangements by money launderers. In
particular, countries should ensure that there is adequate, accurate,
and timely information on express trusts, including information on the
settler, trustee, and beneficiaries, that can be obtained or accessed
in a timely fashion by competent authorities. Countries should consider
measures to facilitate access to beneficial ownership and control
information to financial institutions undertaking the requirements set
out in Recommendation 5.
Forty Recommendations on Money Laundering: Number: 35;
Forty Recommendations on Money Laundering: Recommendation:
International conventions: Countries should take immediate steps to
become a party to and implement fully the Vienna Convention, the
Palermo Convention, and the 1999 United Nations International
Convention for the Suppression of the Financing of Terrorism. Countries
are also encouraged to ratify and implement other relevant
international conventions, such as the 1990 Council of Europe
Convention on Laundering, Search, Seizure and Confiscation of the
Proceeds from Crime, and the 2002 Inter-American Convention against
Terrorism.
Forty Recommendations on Money Laundering: Number: 36;
Forty Recommendations on Money Laundering: Recommendation: Mutual legal
assistance: Countries should rapidly, constructively, and effectively
provide the widest possible range of mutual legal assistance in
relation to money laundering and terrorist financing investigations,
prosecutions, and related proceedings. In particular, countries should
(a) not prohibit or place unreasonable or unduly restrictive conditions
on the provision of mutual legal assistance, (b) ensure that they have
clear and efficient processes for the execution of mutual legal
assistance requests, (c) not refuse to execute a request for mutual
legal assistance on the sole ground that the offense is also considered
to involve fiscal matters, and (d) not refuse to execute a request for
mutual legal assistance on the grounds that laws require financial
institutions to maintain secrecy or confidentiality. Countries should
ensure that the powers of their competent authorities required under
Recommendation 28 are also available for use in response to requests
for mutual legal assistance, and if consistent with their domestic
framework, in response to direct requests from foreign judicial or law
enforcement authorities to domestic counterparts. To avoid conflicts of
jurisdiction, consideration should be given to devising and applying
mechanisms for determining the best venue for prosecution of defendants
in the interests of justice in cases that are subject to prosecution in
more than one country.
Forty Recommendations on Money Laundering: Number: 37;
Forty Recommendations on Money Laundering: Recommendation: Provision of
mutual legal assistance without dual criminality: Countries should, to
the greatest extent possible, render mutual legal assistance
notwithstanding the absence of dual criminality. Where dual criminality
is required for mutual legal assistance or extradition, that
requirement should be deemed to be satisfied regardless of whether both
countries place the offense within the same category of offense or
denominate the offense by the same terminology, provided that both
countries criminalize the conduct underlying the offense.
Forty Recommendations on Money Laundering: Number: 38;
Forty Recommendations on Money Laundering: Recommendation: Freezing,
seizing, and confiscating at foreign request; sharing confiscated
assets: There should be authority to take expeditious action in
response to requests by foreign countries to identify, freeze, seize,
and confiscate property laundered, proceeds from money laundering or
predicate offenses, instrumentalities used in or intended for use in
the commission of these offenses, or property of corresponding value.
There should also be arrangements for coordinating seizure and
confiscation proceedings, which may include the sharing of confiscated
assets.
Forty Recommendations on Money Laundering: Number: 39;
Forty Recommendations on Money Laundering: Recommendation: Extradition:
Countries should recognize money laundering as an extraditable offense.
Each country should either extradite its own nationals, or where a
country does not do so solely on the grounds of nationality, that
country should, at the request of the country seeking extradition,
submit the case without delay to its competent authorities for the
purpose of prosecution of the offenses set forth in the request. Those
authorities should take their decision and conduct their proceedings in
the same manner as in the case of any other offense of a serious nature
under the domestic law of that country. The countries concerned should
cooperate with each other, in particular on procedural and evidentiary
aspects, to ensure the efficiency of such prosecutions. Subject to
their legal frameworks, countries may consider simplifying extradition
by allowing direct transmission of extradition requests between
appropriate ministries, extraditing persons based only on warrants of
arrests or judgments, and/or introducing a simplified extradition of
consenting persons who waive formal extradition proceedings.
Forty Recommendations on Money Laundering: Number: 40;
Forty Recommendations on Money Laundering: Recommendation:
International cooperation and exchange of information: Countries should
ensure that their competent authorities provide the widest possible
range of international cooperation to their foreign counterparts. There
should be clear and effective gateways to facilitate the prompt and
constructive exchange directly between counterparts, either
spontaneously or upon requests, of information relating to both money
laundering and the underlying predicate offenses. Exchanges should be
permitted without unduly restrictive conditions. In particular, (a)
competent authorities should not refuse a request for assistance on the
sole ground that the request is also considered to involve fiscal
matters; (b) countries should not invoke laws that require financial
institutions to maintain secrecy or confidentiality as a ground for
refusing to provide cooperation; and (c) competent authorities should
be able to conduct inquiries and, where possible, investigations on
behalf of foreign counterparts. Where the ability to obtain information
sought by a foreign competent authority is not within the mandate of
its counterparts, countries are also encouraged to permit a prompt and
constructive exchange of information with non-counterparts. Cooperation
with foreign authorities other than counterparts could occur directly
or indirectly. When uncertain about the appropriate avenue to follow,
competent authorities should first contact their foreign counterparts
for assistance. Countries should also establish controls and safeguards
to ensure that information exchanged by competent authorities is used
only in an authorized manner, consistent with their obligations
concerning privacy and data protection.
Forty Recommendations on Money Laundering: Number: I;
Forty Recommendations on Money Laundering: Recommendation: Ratification
and implementation of UN instruments: Each country should take
immediate steps to ratify and to implement fully the1999 United Nations
International Convention for the Suppression of the Financing of
Terrorism. Countries should also immediately implement the United
Nations resolutions relating to the prevention and suppression of the
financing of terrorist acts, particularly United Nations Security
Council Resolution 1373.
Forty Recommendations on Money Laundering: Number: II;
Forty Recommendations on Money Laundering: Recommendation:
Criminalizing the financing of terrorism and associated money
laundering: Each country should criminalize the financing of terrorism,
terrorist acts, and terrorist organizations. Countries should ensure
that such offenses are designated as money laundering predicate
offenses.
Forty Recommendations on Money Laundering: Number: III;
Forty Recommendations on Money Laundering: Recommendation: Freezing and
confiscating terrorist assets: Each country should implement measures
to freeze without delay funds or other assets of terrorists, those who
finance terrorism and terrorist organizations in accordance with the
United Nations resolutions relating to the prevention and suppression
of the financing of terrorist acts. Each country should also adopt and
implement measures, including legislative ones, which would enable the
competent authorities to seize and confiscate property that is the
proceeds of, or used in, or intended or allocated for use in, the
financing of terrorism, terrorist acts, or terrorist organizations.
Forty Recommendations on Money Laundering: Number: IV;
Forty Recommendations on Money Laundering: Recommendation: Reporting
suspicious transactions related to terrorism: If financial
institutions, or other businesses or entities subject to anti-money
laundering obligations, suspect or have reasonable grounds to suspect
that funds are linked or related to, or are to be used for terrorism,
terrorist acts or by terrorist organizations, they should be required
to report promptly their suspicions to the competent authorities.
Forty Recommendations on Money Laundering: Number: V;
Forty Recommendations on Money Laundering: Recommendation:
International cooperation: Each country should afford another country,
on the basis of a treaty, arrangement, or other mechanism for mutual
legal assistance or information exchange, the greatest possible measure
of assistance in connection with criminal, civil enforcement, and
administrative investigations, inquiries, and proceedings relating to
the financing of terrorism, terrorist acts, and terrorist
organizations. Countries should also take all possible measures to
ensure that they do not provide safe havens for individuals charged
with the financing of terrorism, terrorist acts, or terrorist
organizations, and should have procedures in place to extradite, where
possible, such individuals.
Forty Recommendations on Money Laundering: Number: VI;
Forty Recommendations on Money Laundering: Recommendation: Alternative
remittance: Each country should take measures to ensure that persons or
legal entities, including agents, that provide a service for the
transmission of money or value, including transmission through an
informal money or value transfer system or network, should be licensed
or registered and subject to all the FATF recommendations that apply to
banks and non-bank financial institutions. Each country should ensure
that persons or legal entities that carry out this service illegally
are subject to administrative, civil, or criminal sanctions.
Forty Recommendations on Money Laundering: Number: VII;
Forty Recommendations on Money Laundering: Recommendation: Wire
transfers: Countries should take measures to require financial
institutions, including money remitters, to include accurate and
meaningful originator information (name, address, and account number)
on funds transfers and related messages that are sent, and the
information should remain with the transfer or related message through
the payment chain. Countries should take measures to ensure that
financial institutions, including money remitters, conduct enhanced
scrutiny of and monitor for suspicious activity funds transfers which
do not contain complete originator information (name, address, and
account number).
Forty Recommendations on Money Laundering: Number: VIII;
Forty Recommendations on Money Laundering: Recommendation: Non-profit
organizations: Countries should review the adequacy of laws and
regulations that relate to entities that can be abused for the
financing of terrorism. Non-profit organizations are particularly
vulnerable, and countries should ensure that they cannot be misused (a)
by terrorist organizations posing as legitimate entities; (b) to
exploit legitimate entities as conduits for terrorist financing,
including for the purpose of escaping asset freezing measures; and (c)
to conceal or obscure the clandestine diversion of funds intended for
legitimate purposes to terrorist organizations.
Forty Recommendations on Money Laundering: Number: IX;
Forty Recommendations on Money Laundering: Recommendation: Cash
couriers: Countries should have measures in place to detect the
physical cross- border transportation of currency and bearer negotiable
instruments, including a declaration system or other disclosure
obligation. Countries should ensure that their competent authorities
have the legal authority to stop or restrain currency or bearer
negotiable instruments that are suspected to be related to terrorist
financing or money laundering, or that are falsely declared or
disclosed. Countries should ensure that effective, proportionate, and
dissuasive sanctions are available to deal with persons who make false
declaration(s) or disclosure(s). In cases where the currency or bearer
negotiable instruments are related to terrorist financing or money
laundering, countries should also adopt measures, including legislative
ones consistent with Recommendation 3 and Special Recommendation III,
which would enable the confiscation of such currency or instruments.
Source: GAO, based on review of FATF materials.
[End of table]
Collectively, these "40 plus 9" recommendations issued by FATF are
recognized as the international standards for combating money
laundering and terrorist financing. Although the FATF recommendations
do not constitute a binding international convention, many countries--
e.g., member nations of FATF and the FATF-style regional bodies--have
made a political commitment to combat money laundering and terrorist
financing by implementing the recommendations. Moreover, the
international community has recognized the need for monitoring to
ensure that countries effectively implement the FATF recommendations.
A Widely Adopted Methodology Is Used for Monitoring Compliance with
Financial Action Task Force Recommendations:
One of the means for monitoring compliance with FATF recommendations is
a mutual evaluation process whereby a team of experts conducts on-site
visits to assess the progress of member countries. To guide the
assessment of a country's compliance with international standards, a
widely adopted methodology is used--Methodology for Assessing
Compliance with the FATF 40 Recommendations and the FATF 9 Special
Recommendations (updated as of February 2005).[Footnote 37] In addition
to its use by FATF mutual evaluation teams, the Methodology has also
been approved or endorsed by the FATF-style regional bodies and the
Executive Boards of the International Monetary Fund and the World Bank.
The Methodology reflects the principles and follows the structure of
the FATF recommendations. For each of the recommendations, the
Methodology enumerates elements ("essential criteria") that should be
present for full compliance. For instance, table 3 shows the essential
criteria used for assessing implementation of FATF Recommendation 26,
which calls for each nation to establish and empower a financial
intelligence unit.
Table 7: Essential Criteria Used in the Methodology for Monitoring
Implementation of FATF Recommendation 26:
Essential criterion reference number: 26.1;
Subject of the essential criteria: Countries should establish an FIU
that serves as a national center for receiving (and if permitted,
requesting), analyzing, and disseminating disclosures of suspicious
transaction reports and other relevant information concerning suspected
money laundering or financing of terrorism activities. The FIU can be
established either as an independent governmental authority or within
an existing authority or authorities.
Essential criterion reference number: 26.2;
Subject of the essential criteria: The FIU or another competent
authority should provide financial institutions and other reporting
parties with guidance regarding the manner of reporting, including the
specification of reporting forms and the procedures that should be
followed when reporting.
Essential criterion reference number: 26.3;
Subject of the essential criteria: The FIU should have access, directly
or indirectly, on a timely basis to the financial, administrative, and
law enforcement information that it requires to properly undertake its
functions, including the analysis of suspicious transaction reports.
Essential criterion reference number: 26.4;
Subject of the essential criteria: The FIU, either directly or through
another competent authority, should be authorized to obtain from
reporting parities additional information needed to properly undertake
its functions.
Essential criterion reference number: 26.5;
Subject of the essential criteria: The FIU should be authorized to
disseminate financial information to domestic authorities for
investigation or action when there are grounds to suspect money
laundering or the financing of terrorism.
Essential criterion reference number: 26.6;
Subject of the essential criteria: The FIU should have sufficient
operational independence and autonomy to ensure that it is free from
undue influence or interference.
Essential criterion reference number: 26.7;
Subject of the essential criteria: Information held by the FIU should
be securely protected and disseminated only in accordance with the law.
Essential criterion reference number: 26.8;
Subject of the essential criteria: The FIU should publicly release
periodic reports, and such reports should include statistics,
typologies, and trends as well as information regarding its activities.
Essential criterion reference number: 26.9;
Subject of the essential criteria: Where a country has created an FIU,
it should consider applying for membership in the Egmont Group.
Essential criterion reference number: 26.10;
Subject of the essential criteria: Countries should have regard to the
Egmont Group Statement of Purpose and its Principles for Information
Exchange Between Financial Intelligence Units for Money Laundering
Cases. (These documents set out important guidance concerning the role
and functions of FIUs and the mechanisms for exchanging information
between FIUs.)
Source: GAO, based on review of FATF materials.
[End of table]
[End of section]
Appendix III: The Egmont Group of Financial Intelligence Units:
This appendix presents summary information regarding the growth of the
Egmont Group, which is an informal global association of governmental
operating units created to support their respective nation's or
territory's efforts to combat money laundering and terrorism financing.
More detailed information about the purposes and functioning of the
Egmont Group and its members is available at the entity's Web site
(www.egmontgroup.org).[Footnote 38]
The Egmont Group of Financial Intelligence Units Has Grown
Significantly since 1995:
On June 9, 1995, representatives of various nations (including the
United States) and international organizations met at the Egmont-
Arenberg palace in Brussels, Belgium, to discuss ways to enhance mutual
cooperation in combating the global problem of money laundering. A
result was creation of the Egmont Group, whose members are the
specialized anti-money-laundering organizations known as financial
intelligence units. In attendance at the 1995 meeting were
representatives of 14 of these governmental units ("disclosure-
receiving agencies") that became the first Egmont Group members. In the
decade since 1995, the group's membership has increased significantly,
reaching a total of 101 jurisdictions as of July 2005 (see table 8).
Table 8: Egmont Group Membership by Year and Jurisdiction:
Calendar year: 1995;
Financial intelligence units admitted into Egmont Group membership
during the year: Number: 14;
Financial intelligence units admitted into Egmont Group membership
during the year: Jurisdiction (countries and territories): Australia,
Austria, Belgium, France, Iceland, Luxembourg, Monaco, the Netherlands,
Norway, Slovenia, Spain, Sweden, United Kingdom, and the United States;
Cumulative number of Egmont Group members (as of year end): 14.
Calendar year: 1996;
Financial intelligence units admitted into Egmont Group membership
during the year: Number: 0;
Financial intelligence units admitted into Egmont Group membership
during the year: Jurisdiction (countries and territories): None;
Cumulative number of Egmont Group members (as of year end): 14.
Calendar year: 1997;
Financial intelligence units admitted into Egmont Group membership
during the year: Number: 14;
Financial intelligence units admitted into Egmont Group membership
during the year: Jurisdiction (countries and territories): Aruba,
Chile, the Czech Republic, Denmark, Guernsey, Hong Kong, Hungary,
Ireland, Isle of Man, Italy, Mexico, New Zealand, Panama, and Slovakia;
Cumulative number of Egmont Group members (as of year end): 28.
Calendar year: 1998;
Financial intelligence units admitted into Egmont Group membership
during the year: Number: 10;
Financial intelligence units admitted into Egmont Group membership
during the year: Jurisdiction (countries and territories): Croatia,
Cyprus, Finland, Greece, Jersey, the Netherlands Antilles, Paraguay,
Switzerland, Taiwan, and Turkey;
Cumulative number of Egmont Group members (as of year end): 38.
Calendar year: 1999;
Financial intelligence units admitted into Egmont Group membership
during the year: Number: 10;
Financial intelligence units admitted into Egmont Group membership
during the year: Jurisdiction (countries and territories): Bermuda,
Bolivia, Brazil, British Virgin Islands, Bulgaria, Costa Rica, Latvia,
Lithuania, Portugal, and Venezuela;
Cumulative number of Egmont Group members (as of year end): 48.
Calendar year: 2000;
Financial intelligence units admitted into Egmont Group membership
during the year: Number: 5;
Financial intelligence units admitted into Egmont Group membership
during the year: Jurisdiction (countries and territories): Colombia,
the Dominican Republic, Japan, Estonia, and Romania;
Cumulative number of Egmont Group members (as of year end): 53.
Calendar year: 2001;
Financial intelligence units admitted into Egmont Group membership
during the year: Number: 5;
Financial intelligence units admitted into Egmont Group membership
during the year: Jurisdiction (countries and territories): The Bahamas,
Cayman Islands, El Salvador, Liechtenstein, and Thailand;
Cumulative number of Egmont Group members (as of year end): 58.
Calendar year: 2002;
Financial intelligence units admitted into Egmont Group membership
during the year: Number: 11;
Financial intelligence units admitted into Egmont Group membership
during the year: Jurisdiction (countries and territories): Andorra,
Barbados, Canada, Israel, Marshall Islands, Poland, Russia, Singapore,
South Korea, United Arab Emirates, and Vanuatu;
Cumulative number of Egmont Group members (as of year end): 69.
Calendar year: 2003;
Financial intelligence units admitted into Egmont Group membership
during the year: Number: 15;
Financial intelligence units admitted into Egmont Group membership
during the year: Jurisdiction (countries and territories): Albania,
Anguilla, Antigua and Barbuda, Argentina, Bahrain, Dominica, Germany,
Guatemala, Lebanon, Malaysia, Malta, Mauritius, Serbia, South Africa,
and St. Vincent and the Grenadines;
Cumulative number of Egmont Group members (as of year end): 84.
Calendar year: 2004;
Financial intelligence units admitted into Egmont Group membership
during the year: Number: 10;
Financial intelligence units admitted into Egmont Group membership
during the year: Jurisdiction (countries and territories): Belize, Cook
Islands, Egypt, Georgia, Gibraltar, Grenada, Indonesia, Macedonia, St.
Kitts and Nevis, and Ukraine;
Cumulative number of Egmont Group members (as of year end): 94.
Calendar year: 2005[A];
Financial intelligence units admitted into Egmont Group membership
during the year: Number: 7;
Financial intelligence units admitted into Egmont Group membership
during the year: Jurisdiction (countries and territories): Bosnia and
Herzegovina, Honduras, Montenegro, Peru, Philippines, Qatar, and San
Marino;
Cumulative number of Egmont Group members (as of year end): 101.
Source: FinCEN.
[A] The admissions in calendar year 2005 and the cumulative total are
as of July 2005.
[End of table]
The Egmont Group Provides a Network for Exchanging Information:
The common purpose of every FIU is to combat money laundering and
terrorism financing. This purpose is reflected in the Egmont Group's
definition of an FIU, which is as follows:
"A central, national agency responsible for receiving, (and as
permitted, requesting), analyzing and disseminating to the competent
authorities, disclosures of financial information:
* concerning suspected proceeds of crime and potential financing of
terrorism, or:
* required by national legislation or regulation, in order to combat
money laundering and terrorism financing."[Footnote 39]
* This definition, which was adopted in June 2004 at the Egmont Group's
plenary meeting in Guernsey, reflects an expansion of the role of FIUs
to include combating terrorist financing.
* Facilitating cross-border information sharing is a core goal of the
Egmont Group. To enhance such sharing and provide guidelines, the
Egmont Group has generated two documents--(1) Principles for
Information Exchange between Financial Intelligence Units for Money
Laundering and Terrorism Financing Cases and (2) Best Practices for the
Exchange of Information between Financial Intelligence Units. In part,
the Principles document provides that:
* "FIUs should be able to exchange information freely with other FIUs
on the basis of reciprocity or mutual agreement and consistent with
procedures understood by the requested and requesting party. Such
exchange, either upon request or spontaneously, should provide any
available information that may be relevant to an analysis or
investigation of financial transactions and other relevant information
and the persons or companies involved."
* "An FIU requesting information should disclose, to the FIU that will
process the request, at a minimum the reason for the request, the
purpose for which the information will be used and enough information
to enable the receiving FIU to determine whether the request complies
with its domestic law."
* "Information exchanged between FIUs may be used only for the specific
purpose for which the information was sought or provided."
* "The requesting FIU may not transfer information shared by a
disclosing FIU to a third party, nor make use of the information in an
administrative, investigative, prosecutorial, or judicial purpose
without the prior consent of the FIU that disclosed the information."
* The Best Practices document specifies that "the exchange of
information between FIUs should take place as informally and as rapidly
as possible and with no excessive formal requirements, while
guaranteeing protection of privacy and confidentiality of the shared
data" and that, where appropriate, FIUs should use the Egmont Secure
Web. Further, among other guidelines, the document provides that:
* "If necessary the requesting FIU should indicate the time by which it
needs to receive an answer. Where a request is marked 'urgent' or a
deadline is indicated, the reasons for the urgency or deadline should
be explained."
* "FIUs should give priority to urgent requests. If the receiving FIU
has concerns about the classification of a request as urgent, it should
contact the requesting FIU immediately in order to resolve the issue.
Moreover, each request, whether or not marked as 'urgent,' should be
processed in the same timely manner as domestic requests for
information."
* "As a general principle, the requested FIU should strive to reply to
a request for information, including an interim response, within 1 week
from receipt in the following circumstances:
* if it can provide a positive/negative answer to a request regarding
information it has direct access to;
* if it is unable to provide an answer due to legal impediments."
* "Whenever the requested FIU needs to have external databases searched
or query third parties (such as financial institutions), an answer
should be provided within 1 month after receipt of the request."
* "If the results of the enquiries are still not all available after 1
month, the requested FIU should provide the information it already has
in its possession or at least give an indication of when it will be in
a position to provide a complete answer. This may be done orally."
* "FIUs should consider establishing mechanisms in order to monitor
request-related information, enabling them to detect new information
they receive regarding transactions, STRs [suspicious transaction
reports], etc., that are involved in previously received requests. Such
a monitoring system would enable FIUs to inform former requesters of
new and relevant material related to their prior request."
FOOTNOTES
[1] Among other functions, FinCEN is responsible for administering the
Bank Secrecy Act, Pub. L. No. 91-508, 84 Stat. 1115 (1970) (codified as
amended at 12 U.S.C. §§ 1951 et seq.), which is a record-keeping and
reporting law designed to prevent financial institutions from being
used as intermediaries for the transfer or deposit of money derived
from criminal activity. See also 31 U.S.C. § 5301 et seq.
[2] Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001,
Pub. L. No. 107-56, § 330, 115 Stat. 272, 320.
[3] Codified as amended at 31 U.S.C. § 310.
[4] FATF-style regional bodies represent nations in seven geographic
areas, respectively, Asia/Pacific, Caribbean, Europe, Eurasia, South
America, Eastern and Southern Africa, and Middle East and North Africa.
[5] Codified as amended at 31 U.S.C. § 5318A.
[6] The quotes indicate that the U.S. government has not officially
recognized the "Turkish Republic of Northern Cyprus."
[7] The most recent Egmont Group plenary meeting was held June 30 to
July 1, 2005, in Washington, D.C. At the plenary meeting, the Egmont
Group recognized 7 new members to its global network of FIUs, bringing
the total membership to 101.
[8] Pub. L. 91-508, 84 Stat. 1115 (1970).
[9] In this context, a letter rogatory is a method of obtaining
assistance from abroad in the absence of a treaty or executive
agreement. Essentially, this device is a formal request from a court in
one country to a court in another country to seek international
judicial assistance in obtaining testimony or other evidence.
[10] Testimony of Stuart Levey, Under Secretary, Office of Terrorism
and Financial Intelligence, Department of the Treasury, at a hearing
("Money Laundering and Terror Financing Issues in the Middle East"),
before the Senate Committee on Banking, Housing, and Urban Affairs,
July 13, 2005.
[11] A primary purpose of Security Council Resolution 1617 was to
reaffirm and strengthen international sanctions on Al-Qaida, the
Taliban, and their associates.
[12] Codified as amended at 31 U.S.C. § 5318A.
[13] Department of State, Bureau for International Narcotics and Law
Enforcement Affairs, International Narcotics Control Strategy Report,
Volume II, Money Laundering and Financial Crimes (March 2006).
[14] GAO, Terrorist Financing: Better Strategic Planning Needed to
Coordinate U.S. Efforts to Deliver Counter-Terrorism Financing Training
and Technical Assistance Abroad, GAO-06-19 (Washington, D.C.: Oct. 24,
2005).
[15] The Egmont Committee is composed of a chair, two co-vice chairs,
the chairs of the Egmont Group's five working groups (information
technology, legal, operational, training, and outreach), and regional
representation from Africa, Asia, Europe, the Americas, and Oceania.
The committee functions as the consultation and coordination mechanism
for FIU heads and the five working groups.
[16] International Monetary Fund, Legal Department, AML/CFT Standards
and Reference Materials, April 2004.
[17] At the time of the March 2004 report by IMF and the World Bank,
the FATF recommendations were 40 plus 8. Later, in October 2004, FATF
published a ninth special recommendation on terrorist financing (see
app. II).
[18] The common methodology reflects the principles of the FATF
recommendations. See International Monetary Fund and World Bank, Joint
Report on the Methodology for Assessing Compliance with the FATF 40
Recommendations and the FATF 8 Special Recommendations--Supplementary
Information (March 16, 2004). Also, appendix II of this report briefly
discusses an updated version of the methodology--Methodology for
Assessing Compliance with the FATF 40 Recommendations and the FATF 9
Special Recommendations (updated as of February 2005).
[19] Financial Action Task Force on Money Laundering, Annual Report
2004-2005, June 10, 2005, p. 9.
[20] Egmont Group, "Egmont Meetings at a Glance," www.egmontgroup.org
(2006).
[21] Statement of William J. Fox, Director, FinCEN, at a hearing
("Counterterror Initiatives and Concerns in the Terror Finance
Program") before the Senate Committee on Banking, Housing, and Urban
Affairs, April 29, 2004.
[22] Financial Crimes Enforcement Network, Strategic Plan, FY 2006-
2008: Safeguarding the Financial System from the Abuse of Financial
Crime (February 2005).
[23] Department of the Treasury, Financial Crimes Enforcement Network,
Fiscal Year 2006 Congressional Budget Submission (Feb. 7, 2005), p. 4.
[24] Statement of Michael F. A. Morehart, Section Chief, Terrorist
Financing Operations Section, Counterterrorism Division, FBI, at a
hearing before the House Committee on Financial Services (May 26,
2005).
[25] The Treasury Forfeiture Fund is the receipt account for the
deposit of nontax forfeitures made pursuant to laws enforced or
administered by the Internal Revenue Service-Criminal Investigation and
Department of Homeland Security components (including U.S. Immigration
and Customs Enforcement, U.S. Customs and Border Protection, U.S.
Secret Service, and U.S. Coast Guard).
[26] Generally, before obtaining access to a federal computerized
information system, a potential user must first be issued a digital
certificate by a government-approved certificate authority. A digital
certificate essentially is an electronic "credit card" that establishes
a person's credentials when doing business or other transactions on the
Web. The certificate contains the person's name, a serial number,
expiration date, a copy of the certificate holder's public key (used
for encrypting messages and digital signatures), and the digital
signature of the certificate-issuing authority so that a recipient can
verify that the certificate is real. FinCEN is the authority for
issuing digital certificates for use of the Egmont Secure Web.
[27] Financial Crimes Enforcement Network, Strategic Plan FY 2006 -
2008, Safeguarding the Financial System from the Abuse of Financial
Crime (February 2005, p. 22).
[28] FinCEN's previous survey was conducted in September to October
2003.
[29] Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001,
Pub. L. No. 107-56, § 330, 115 Stat. 272, 320.
[30] Codified as amended at 31 U.S.C. § 310.
[31] FATF has issued "Forty Recommendations on Money Laundering" and
"Nine Special Recommendations on Terrorist Financing." Collectively,
FATF's "40 plus 9" recommendations are widely recognized as the
international standards for combating money laundering and terrorist
financing.
[32] On June 9, 1995, representatives of various nations (including the
United States) and international organizations met at the Egmont-
Arenberg palace in Brussels, Belgium, to discuss ways to enhance mutual
cooperation in combating the global problem of money laundering. A
result was creation of the Egmont Group, whose members are the
specialized anti-money-laundering organizations known as FIUs.
[33] Codified as amended at 31 U.S.C. § 5318A.
[34] The Egmont Committee is composed of a chair, two co-vice chairs,
the chairs of the Egmont Group's five working groups, and regional
representation from Africa, Asia, Europe, the Americas, and Oceania.
[35] The common methodology reflects the principles of the FATF
recommendations. See International Monetary Fund and World Bank, Joint
Report on the Methodology for Assessing Compliance with the FATF 40
Recommendations and the FATF 8 Special Recommendations-Supplementary
Information (March 16, 2004). The common methodology was updated in
2005--Methodology for Assessing Compliance with the FATF 40
Recommendations and the FATF 9 Special Recommendations (updated as of
February 2005).
[36] The group of G7 nations--Canada, France, Germany, Italy, Japan,
the United Kingdom, and the United States--has been expanded to include
Russia. Annual G8 summits bring together the leaders of these nations-
-with participation of the European Union (represented by the President
of the European Council and the President of the European Commission)-
-to discuss a broad-based agenda of international, economic, political,
and social issues.
[37] Copy available at www.fatf-gafi.org.
[38] Another useful resource is a handbook prepared jointly by the
International Monetary Fund and the World Bank, Financial Intelligence
Units: An Overview (2004).
[39] Egmont Group, Statement of Purpose of the Egmont Group of
Financial Intelligence Units, www.egmontgroup.org (2006).
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U.S. Government Accountability Office,
441 G Street NW, Room 7149
Washington, D.C. 20548: